Culture Matters to Clients, and It Should Matter to Planners

Journal of Financial Planning: August 2018


Meir Statman, Ph.D., is the Glenn Klimek Professor of Finance at Santa Clara University and author of Finance for Normal People: How Investors and Markets Behave​.

Cultural literacy is analogous to financial literacy, and it is as important.

Culture is the set of beliefs, values, and expected behaviors. Culture varies across countries—individualistic in some countries and collectivistic in others. Culture varies among groups in each country by economics, religion, gender, politics, and more. And culture varies within each of us by circumstances and roles—a parent, son, or daughter; engineer, professor, or policeman; immigrant or native-born. Culture is usually transmitted intact from generation to generation, but culture changes over time, sometimes abruptly; witness the #MeToo movement.

We are attuned to our own cultures, but often deaf to other cultures. A financial planner told me about a wealthy couple who wanted their investments to be true to their social responsibility values. That planner was attuned to his own culture, where investment returns and risks are all that matters, but deaf to the couple’s culture. He explained that satisfying wants for social responsibility was likely to subtract from investment returns. The couple acquiesced. Yet they fired that planner soon after, switching to one who was attuned to their culture.

Culture in Families

Children expect parents to invest in them, and parents expect returns on their investments, but the nature of these returns vary across countries, and they vary by culture among families in each country.

Can parents expect more than the expressive and emotional benefits of the pride they take in their children and the affection of their grandchildren? Can parents expect utilitarian benefits from their adult children, including financial support and personal care in old age? Can adult children expect the utilitarian, expressive, and emotional benefits of their parents’ support, including a place in their parents’ home?

Immigrants are frequently amazed by differences between the cultures of their old countries and new ones. I immigrated to the United States from Israel decades ago, but I still recall my astonishment at discovering some of these cultural differences. I was traveling by train from New York to Philadelphia not long after arriving in the U.S. when I overheard a conversation between two men sitting in the row ahead of me. One said to the other: “I told my daughter that I’m paying her college tuition but she is on her own after that!” I was astonished. The common practice for parents in Israel at the time was to support their children long after college. For instance, it was common for the parents of the bride and the groom to pay substantial portions of the down payment for a condominium for the new couple at a time when down payments amounted to more than half the price of a condominium.

Culture in Countries

Dutch social psychologist Geert Hofstede studied the cultures of many countries and identified cultural dimensions that distinguish each from others. Where a country lands along the span between individualism and collectivism is one of these cultural dimensions.

Ties between individuals are loose in individualistic countries, where individuals are expected to look after themselves, their spouses, and their young children. In contrast, ties between individuals are strong in collectivistic countries where people are integrated into cohesive groups of family and friends who are expected to support one another.

I would not have been astonished by the conversation on the train had I known that the U.S. is first in individualism among all countries. Culture in Israel is not as individualistic as in the U.S., and cultures in China and Mexico are closer to the collectivistic end.

For example, a man from Israel joined a web discussion about cultural differences: “I grew up in Israel where it’s quite common and expected that older parents will come live with their children after a certain age. They’re not seen as a burden, but as a welcome addition to the household. The parents help with household activities and help take care of children and grandkids.”

Within that discussion, an American woman wrote: “My boyfriend’s parents are Asian and I’m white American. Last week we were discussing how much money he should give to his parents when he visits them next month. This week, my parents were visiting and gave me an unexpected (and unnecessary) financial gift. I would never think of giving my parents money unless they needed it. He would never think of accepting money from his parents unless he needed it. It struck me as ironic and as a good illustration of the cultural differences concerning parent-child relationships and financial support.”

Think of a client from a collectivistic culture who engages a financial planner in an individualist culture. Planners using goals-based planning usually ask clients, “What goals are important to you?” Clients might mention retirement, education, and bequest, but planners unaware of cultural differences might overlook implicit culture-based goals and responsibilities.

Planners aware of culture might ask, “Do you consider financial support to needy aging parents, adult children, brothers, sisters, or other members of your extended family one of your goals or responsibilities?” Clients of different cultures are likely to answer these questions differently. The goals and responsibilities of clients rooted in collectivistic cultures encompass their extended families. These goals and responsibilities must be part of a comprehensive financial plan.

I recall a conversation in 2008 with an Indian immigrant who had accumulated much wealth and designated some of his stock holdings to his adult children. He felt compelled to sell these stock holdings at the time, afraid that further losses would prevent him from bequeathing certain designated amounts.

We see the effect of cultural changes in heartbreaking stories about suicides of elderly Koreans. Korean culture is still generally collectivistic, where sons and their wives are expected to care for elderly parents. Rapid economic development in Korea, however, has drawn many sons into cities and induced some to shirk their culture-based responsibilities, leaving rural parents destitute. Culture is changing in turn, as parents switch away from preference for sons over daughters.

We should resist a tendency to exaggerate cultural differences, such as between individualism and collectivism, and avoid a temptation to regard people as stereotypes of their cultures. Many American parents living in our individualistic culture support needy adult children, and many American adult children support aging parents. Another American woman wrote in the same web discussion: “I am a white American but some of these… comments [about cultural differences] boggle my mind. My mom supported me through college even though it ate into her retirement savings. This means I owe her. Period.”

Indeed, many in the U.S. belong to the “sandwich generation,” caught between caring for parents and children. Elizabeth Rodriguez, a 58-year-old woman, left her job, sold her house, and depleted her savings to care for her 97-year-old father. The costs are mounting: “A shower chair, body cream with no alcohol, new shoes…You don’t stop and calculate. You just buy what you have to buy,” she told The New York Times​.

Sometimes children are the only defense elderly parents have against scammers who exploit their loneliness and impaired thinking to steal their savings. Yet children are caught between the urge to protect their parents, turning into the parents of their parents, and the wish to let parents maintain the dignity of their independence.

Culture and Risk Tolerance

Chinese are more willing to tolerate risk than Americans, according to research I published in 2015. Chinese, on average, were willing to risk more than a 17 percent decline in their standard of living for an even chance at a 50 percent increase, whereas Americans were willing to risk less than a 13 percent decline for the same chance (see “Culture in Risk, Regret, Maximization, Social Trust, and Life Satisfaction​” in the Journal of Investment Consulting). It might be that Chinese are more willing to tolerate risk than Americans because the relatively collectivistic culture of China offers a strong safety net of support from family and friends if they take risk and fail, whereas the relatively individualistic American culture offers a weaker safety net.

The importance of a safety net of family and friends is evident in a 2011 study titled “Consumer Bankruptcy and Default: The Role of Individual Social Capital​” published in the Journal of Economic Psychology that compared the financial situations of Americans who have migrated far from their places of birth to the financial situations of people who stayed near. People who migrated far had weaker safety nets than people who stayed close. People who migrated far were more likely to default on loans and go bankrupt than people who stayed close.

The relation between the willingness of people to tolerate risk and the place of their country along the span between individualism and collectivism is evident beyond China and the United States. People in countries closer to the collectivistic end of the cultural span are generally more willing to take risk than people closer to the individualistic end.

Strong safety nets of family and friends in collectivistic countries might be the reason for greater willingness to tolerate risk among people living there, but another relationship indicates that safety nets do not always quiet fear of risk. Some countries provide stronger public safety nets than other countries. France is almost as individualistic as the U.S., providing weak private safety nets of family and friends. But France is very different from the U.S. in providing a strong public safety net in forms such as health and unemployment benefits. Public social spending in France amounts to one-third of its net national income, while public social spending in the U.S. amounts to less than one-fifth of its net national income.

If strong safety nets make people more willing to tolerate risk, we would expect to find that the willingness to tolerate risk is higher in countries with strong public safety nets than in countries with weak ones. Yet this is not what we find. If anything, people in countries with strong public safety nets are less willing to take risk than people in countries with weak public safety nets. This raises the possibility that people in countries with strong public safety nets are less willing to take risk than people in countries with weak public safety nets because of cultural differences.

Indeed, France ranks high in “uncertainty avoidance,” another of Hofstede’s cultural dimensions, whereas the U.S. ranks low. High uncertainty avoidance might create demand for strong public safety nets.

Differences among countries in average income offer another possible reason for differences among countries in the willingness to tolerate risk. People are more willing to tolerate risk in countries where average incomes are low than in countries where average incomes are high. It might be that relatively low incomes induce people to tolerate risk in the same way that low incomes induce the poor to spend larger proportions of their incomes on lottery tickets than the rich.

More generally, we are inclined to tolerate risk when our aspirations exceed our situations. I chose to tolerate the risk of leaving my secure job in Israel because I aspired for a satisfying vocation, beyond a secure job and even a good career. I tolerated the uncertain prospect of a Ph.D. program in the U.S. because my job in Israel and prospective career bored me to death. The risk I tolerated pales relative to the risk tolerated by refugees crossing the Mediterranean on rickety boats. Their aspirations are modest—a safe place, a job, and an opportunity to educate their children—but these aspirations are high relative to crushing poverty or barrel bombs and poison gas.


Cultures vary across countries and within them. A financial planner’s culture might lead him or her to believe that clients should invest for high returns and low risk, with no regard to values, but their client’s culture might be different. The planner’s culture might lead them to believe that supporting adult children would spoil them, but their client’s culture might be different. The planner’s culture might lead them to believe that clients should place much trust in them, but clients from low-trust cultures might not agree.

Financial planners aware of culture do well, enhancing their clients’ wealth and well-being and their own. Planners need not be cultural experts, but they need to be attuned to the cultures of their clients and refrain from assuming that their clients’ cultures are, or should be, identical to their own. 

Diversity, Equity and Inclusion