How Different Cultures Approach Investing

June 23, 2007

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Tahira Hira

Departments of Human Development and Family Studies

American Association of Family and Consumer Sciences

How Different Cultures Approach Investing

Tahira K. Hira – Iowa State University Caezilia Loibl – Ohio State University Tom Schenk Jr. – Iowa State University

June 23, 2007

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Departments of Human Development and Family StudiesTahira Hira


Objectives• Analyze characteristics of high net-worth households by racial/ethnic groups

• Explore patterns of financial socialization

• Determine primary investment decision makers

• Identify Adult Learning Preferences & Investment Information Sources

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Background• Financial Socialization

– Parental Involvement– Financial role-models

• Financial decision makers– Sole decision– Joint decisions with spouse or others

• Learning Preferences– Investment sources– Learning Preferences

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Procedures• Households with annual incomes greater than $75,000.

• Identified four racial and ethnic groups:– Whites, Blacks, Asian/Pacific Islanders, Hispanics.

• 911 Telephone interviews between 10/05 and 2/06.– National Stratified Random Sample– Average interview time: 22 minutes.

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Demographics: Race & Ethnicity

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Demographics: Gender

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Demographics: Married

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Demographics: Household Size

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Finances: Debts, Assets, Debt Ratio

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Financial Socialization• Similar findings among ethnic groups:

– Lack of parental discussion of money– Strong recollection of parental concern over money.

– School teachers have minimal impact.– Strong parental influence on financial knowledge.

• Exception:– Asian parents were most likely to discuss the importance of savings.

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Perceived Childhood Financial Security

Percentage RespondingPerceived Financial

Security White Black Asian Hispanic

1 (Not At All Secure)* 4.00% 9.86% 0.00% 5.80%2* 12.57% 14.08% 25.71% 15.94%3** 22.29% 29.58% 20.00% 34.78%4*** 33.14% 28.17% 28.57% 36.23%5 (Very Secure) 28.00% 18.31% 25.71% 7.25% *indicates 99% confidence** indicates 95% confidence*** indicates 90% confidence

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Making Financial Decisions

Percentage Responding “Often” or “Very Often”

Decision Maker White Black AsianHispani

c

You, by yourself 27.43% 30.56% 34.29% 23.19%Spouse alone 1.43% 2.78% 1.43% 4.35%You and Spouse* 56.29% 56.94% 60.00% 60.87%You with others*** 6.00% 4.17% 1.43% 4.35%Spouse with others*** 0.29% 0.00% 0.00% 1.45%Another Way*** 8.57% 5.56% 2.86% 5.80% *indicates 99%

confidence*** indicates 90%

confidence

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Investment Information Sources

Information Sources White Black Asian Hispanic

Financial Advisor

31.6% 20.8% 11.4% 17.4%

Internet 21.3% 4.2% 44.3% 14.5%TV Programs 4.0% 1.4% 12.9% 1.5%Radio 3.4% 7.0% 2.9% 1.5%Classes or Workshops

2.6% 8.3% 2.9% 5.8%

Print Media** 23.0% 16.7% 24.3% 20.3%Investment Club***

2.7% 2.8% 2.9% 1.5%

Friends*** 8.1% 13.9% 4.3% 13.1%Workplace*** 10.0% 12.5% 11.4% 7.3%** indicates 95% confidence ***indicates 90% confidence

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Learning PreferencesPercentage Who Responded "Agree" or ”Strongly Agree"

Learning Preferences White Black Asian HispanicEnjoy learning things** 85.0% 90.3% 91.4% 92.8%Seminars are useful 51.8% 80.3% 73.9% 68.2%Prefer discussing one-

on-one**86.4% 95.8% 88.6% 84.1%

Not interested in learning*

12.3% 11.1% 8.6% 13.0%

Prefer Self Research* 72.1% 80.6% 88.6% 78.3%Want to know details 71.7% 84.7% 85.7% 87.0% * indicates 99%

confidence** indicates 95%

confidence

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Summary - similarities• Little perceived influence from parents and teachers.

• Respondents perceived financial insecurity as children.

• Joint (with Spouse) investment decisions.

• Strong desire to learn.• Less likely to use radio, classes, and investment clubs.

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Summary - differences• Asians were more likely to feel financially insecure as children.

• Asians less likely to use financial advisors, more internet/TV users.

• Whites are less likely to find seminars helpful and less detail oriented.

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Implications• Individuals:

– Discuss money management with children.• Financial Professionals:

– Minorities under-utilizing financial advisors

– Discount brokers• Educators:

– Adults are typically willing to learn.– High-tech media is not being employed.

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Future Directions• Determine causal relationships• Longitudinal study• Enlarge sample size• Cohort Analysis

Documents

How Different Cultures Approach Investing