Journal of Financial Planning: November 2022
HanNa Lim, Ph.D., CFP®, is an assistant professor in the department of personal financial planning at Kansas State University. She teaches insurance planning and theory courses. Before she joined K-State, she worked as a senior researcher at Samsung Life Insurance.
Blake Gray, Ph.D., CFP®, is a professor of practice in the department of personal financial planning at Kansas State University. He teaches introduction to financial planning and facilitating client communication. Before joining K-State, he worked at Vanguard and obtained his Ph.D. at Texas Tech University.
With a growing immigrant population in the United States (46.6 million immigrants, which consists of 14.2 percent of the U.S. population, as of January 2022), it has never been more important to understand different cultures. The financial planning profession is no exception. The growing cultural, ethnic, religious, racial, and general diversity of the nation presents an opportunity and a challenge. The opportunity is the broadening of perspectives and financial solutions. On the other hand, complexity necessitates greater understanding and learning beyond the already complex financial planning landscape. Can planners genuinely understand the large variety of cultures beyond their own? No, but through relationships of trust we can build learning environments where open conversations allow the client primacy in defining how their values are reflected in their financial goals.
Culture is “a set of shared attitudes, values, goals, and practices that characterizes an institution or organization” as well as “the customary beliefs, social forms, and material traits of a racial, religious, or social group” (Merriam-Webster 2022). Operating within familial, religious, geographic, ethnic, and other systems, individuals adopt, adapt, and implement practices in their financial lives. The financial planning system in North America has primarily been based on White and Western culture (Grubman and Jaffe 2016). While primary culture can provide a common reference point for shared efforts, it can also alienate others and limit financial planners’ abilities to serve the broader community.
This column will provide some examples where culture influences insurance decision-making and discuss foundational elements to help planners expand their ability to serve more effectively. As we will discuss below, cultural differences in the perception of risk and uncertainty play a significant role in insurance decision-making.
Collectivism and Lack of Interest in Insurance
Geert Hofstede, a social psychologist, developed the Hofstede model of six dimensions of culture, and one of the dimensions is individualism versus collectivism. Under the individualistic culture, individuals take care of themselves and their immediate families. Individuals from collectivistic cultures belong to extended families or clans where protection is provided in exchange for loyalty (Hofstede 2011). Tight social ties can act as a cushion against risk. The cushion hypothesis suggests that people from collectivistic cultures are more willing to take risks because they can receive financial help from members of their group (Hsee and Weber 1999). This risk perception is reflected in insurance demand.
Countries with more individualistic cultures showed more insurance consumption, even after controlling for the effect of the legal system and the development of financial markets (Zhong 2015). Considering that North American countries and European countries tend to show more individualistic characteristics, while Asian countries and South/Central American countries tend to show more collectivistic characteristics, a careful approach is needed for risk management and insurance planning. When clients consider family as a perfect substitute for insurance, there is a possibility for clients to fail to appropriately manage risk. One example is the low demand for long-term care insurance. There is a possibility of impoverishing one’s spouse without appropriately managing long-term care risk.
Muslims and Life Insurance
Religion is where common rites and practices form among a group of people who share “a cause, principle, or system of belief held with ardor or faith” (Merriam-Webster 2022). Religion can help individuals make meaning of why things happen, deal with life’s struggles, and hope for a better future. Religiosity is the extent to which an individual is committed to their religion, reflected in attitudes and beliefs (Lopez, Huynh, and Fuligni 2011). It has been generally connected with increased familial responsibility, future orientation, and decreased debt (Dowling et al. 2003; Hess 2012). For Muslims, religiosity is also connected with the selection of financial instruments that adhere to their religious code (Antara, Musa, and Hassan 2016; Newaz, Fam, and Sharma 2016).
Muslims often see themselves as vicegerents who have delegated responsibility from God and through practices and efforts honor God and humanity (Haneef 2002). Religious laws are social and moral codes that seek to define adherent practices. In Islam, there is debate on whether or not life insurance is acceptable. Some scholars argue that life insurance violates prohibitions on gambling, interest, uncertainty, and inheritance and bequest standards, and clashes with fate or predestination (Billah 1993).
To ensure the availability of protection in the case of premature death, some companies have created halal (allowable) life insurance products called takaful schemes that seek to provide pooled funds while avoiding disallowed investments. Use of these insurance products amongst Muslims varies on three dimensions: attitude toward the behavior (whether viewed as in accordance with faith), knowledge of products both forbidden and allowable, and religiosity. As religiosity increases, the use of conventional life insurance decreases and the adoption of Islamic life insurance increases (Souiden and Jabeur 2015). In the United States, it is not always known (by client and planner) that such options are available. When known, individuals may still view these as haram (disallowed)
Cultural Taboo as Barriers to Life Insurance
The Chinese life insurance market has been impacted by cultural resistance. The subjects of death and misfortunes are strictly taboo in Chinese culture, and this makes starting a conversation about life insurance challenging (Zhong 2015). Chinese culture believes that thinking and talking about misfortunes may bring misfortunes. Insurance products are designed to protect against risk, and those risks are usually related to negative events such as illness, accident, and even death. As financial planners, life insurance is a difficult topic to bring up to clients who strongly believe discussing premature death is off limits.
A researcher who interviewed sales agents, staff members, clients, and prospects of life insurance companies in Shanghai noted that Chinese cultural logics “are not at all compatible with the concept of risk embedded in life insurance” (Chan 2009, p. 286). However, he also proposed that culture provided an answer to this challenge. Insurance companies in Shanghai accommodated their life insurance products to the local cultural values. They reframed life insurance products as money management products with savings and investment functions rather than risk management products to circumvent the tough topic of premature death. Whole life policies were the main products and the focus of conversation with prospects was on “savings,” “returns,” and “dividends.”
Social Networks and Social Norms of Immigrant Families
When working with immigrant families, understanding the structure and functions of their social networks can help financial planners approach risk management adequately. One of the examples is the higher uninsured rate in health insurance among immigrants from South Korea. Health insurance is mandatory through a single national health insurer in South Korea. Therefore, self-employed Korean immigrants who lack employer-provided health insurance are confronted with complicated decisions regarding health insurance in the United States and rely on social networks to make decisions.
Self-employed Korean immigrants living in ethnic enclaves in Southern California get health information inside of their social networks (Oh and Jeong 2017). These networks often do not provide updated and accurate information. Also, the dominant social norm among these communities is “We don’t buy health insurance,” which might be rooted in dissatisfaction with the cost and quality of the U.S. health system that existing members inside their social networks experienced before. The lack of sufficient information to make the right decision over health insurance plans might be more challenging when the social network is homogeneous and closed. This can be a challenge but at the same time an opportunity for financial planners who have experience working with immigrant families. Immigrant families will be the most active in referrals because they share information inside of their social networks, and the members follow what others do without strong resistance.
Conclusion
Planners who know more about the diverse landscape of risk management attitudes and views can expand their impact and clientele. Implementing best practices and open conversations help planners understand their clients’ cultures and the norms, values, and attitudes that are the “why” behind behaviors. Understanding the informal insurance networks that collectivists favor can help a planner identify goals that are incongruent with typical formal insurance structures. When analyzing current and future courses of action, discussing current practices openly and exploring potential change can help the planner understand why a Muslim American may, or may not, favor halal life insurance options. When we develop and present insurance options, understanding a client’s view of taboo language can help us frame options to match with the cultural norms appropriate to some Chinese clients. Finally, implementing the plan and monitoring progress can help planners become sources of information with immigrant community social networks. In these ways, developing inclusive practices directly aligns with the financial planning process and planner success (CFP Board 2021).
Planners should consider adopting an open mindset and allow clients to define their culture. It is a best practice not to assume culture and values based on race, ethnicity, religious faith, or national background. Practice understanding by reflecting, in words acceptable to the client, the why behind financial preferences. For example, a client might rather hear “I understand that you want to ensure fair treatment of others and honor God when you buy products to protect your family” than “You are Muslim, so you don’t buy life insurance, right?” Often the “why” is more ennobling than the “what.” Culturally conscious planners align with clients and are enriched by the experience.
References
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