From the July 2009 issue of Investment Advisor • Subscribe!

July 1, 2009

The Psychology of Advice: Crash Consciousness

Reactions to setbacks may be shaped by our cultures of origin

Can you see JP Morgan Chase employees holding CEO Jamie Dimon hostage to protest layoffs? Or hear suburban parents saying to their kids, "Too bad your college savings plan tanked, but that's the way the cookie crumbles"? Probably not. But in other cultures, reactions to the recent months of economic upheaval and change might not be what you'd expect. In fact, the intensity of people's responses may well be influenced on deep and subtle levels by their ethnic and cultural backgrounds.

How so? Well, there's a good chance our reactions would be different if our culture practiced an attitude of submission to fate. Think of the rigid restrictions on people born in certain Indian castes, as well as phrases such as que ser?, ser?; inshallah, and si Dios quiere, all variations on "The future is out of our hands."

In some other cultures, a reverse may produce rebellion and fury. In France this often takes the form of mass strikes, attacks on cars and stores, holding bosses hostage, and demonstrations that bring out the riot police. More progressive ex-employees in Argentina have taken over the companies that fired them and transformed them into worker-run cooperatives.

Here in the U.S., people are reacting to the economic turmoil largely by adopting behavior that lets them keep slogging toward their goals. Granted, there's some resignation and anger, but many of us have responded by reducing spending, getting another job, or postponing retirement.

To keep the current crisis from weakening your bonds with your clients, you need to tune into their beliefs and fears at the deepest level. Here are some situations where this understanding can be crucial in helping clients from other cultural and ethnic backgrounds weather the storm.

Q: After the market crash, my clients pulled in their horns and stopped spending. They emigrated from Japan about 20 years ago and have always been savers, but now they're putting aside more than 40% of their income. They'd like me to explain to their two teenage children, who are upset about not having much spending money, why saving should be paramount right now. Personally, I feel the parents are overreacting. How should I handle this?

A: The Japanese have traditionally been enormous savers. In fact, hoarding money is believed to have deepened the economic crisis in Japan, since so little was being exchanged to buy goods and services. Intensifying this behavior is a cultural belief in gaman: toughing it out, persevering, sacrificing for a higher good.

I would acknowledge the power of these messages with your Japanese clients. Show them that you understand the wisdom and benefits of saving money, especially in hard times. Once they feel comfortable that you respect their feelings and their behavior, you may be able to help them see things from the viewpoint of their children.

Try to educate the parents on the virtues of moderation in all things, including saving as well as spending. Tell them that as an experienced financial professional, you have seen clients go overboard in a way that strains family relationships more than it benefits them.

Just remember that cultural messages and behaviors run deep, and overcoming them will require attentive listening and patience on your part.

Q: I've been working for three years with a young black client who was brought up not to trust the stock market. Starting with REITs, I encouraged him to move into a total market index fund and an actively managed large cap fund with a fine track record. When things went south last fall, he panicked and told me to sell everything. Since his goal is to build wealth, I've talked with him about venturing back into the market, but he's dragging his feet. Any ideas to help me overcome his anxiety?

A: As you observed, African-Americans have traditionally distrusted stocks and invested in various forms of real estate instead. The market crash, along with the Wall Street scandals and frauds that have come to light, seemingly validated this wariness. In fact, I wager that many others from a variety of backgrounds have joined them on the sidelines of the stock market.

There's no quick fix for this client. Begin by listening to his fear, distrust, and anger, and affirming aspects of his commentary that you think make sense from his perspective. For example, you might say, "I understand why land has always felt safer to you. It's something you can see and touch, while investing in the stock market may feel more nebulous and unreal."

Once he feels understood, gradually educate him on what he might gain from putting his toe back into the market. You might suggest that he invest a small "bucket" of savings as an experiment, without risking the majority of his capital.

Remember to take it slow. No amount of rational explanation will override the power of your client's fears and his old, deeply held beliefs--not until the stressful bear market is over, at any rate. But if you listen and respond to him carefully and with respect, you may be able to nudge him toward stocks again, at least in a limited way.

Q: My client works for his father, a Saudi national who owns a New York-based export business. The young man has been doing well and will eventually inherit the firm. I find it interesting that even though he is not averse to taking business risks, his entire portfolio is invested in laddered Treasuries. This served him well, of course, when the stock market was collapsing. But I wonder what's going on here to explain his rather limited approach.

A: To understand this behavior, I consulted former U.S. Ambassador to the United Arab Emirates David Mack, now a Middle East Institute Scholar, who has considerable experience with Arab cultures. He explained that the Saudi government funds their equivalent of Social Security chiefly with U.S. Treasury bonds. Although this policy--the national equivalent of keeping your money under the mattress--has probably cost billions in forgone returns over the years, it paid off dramatically during the recent market crash. Meanwhile, Saudi Arabia's investment in Treasuries has helped keep the U.S. dollar strong.

So I believe your client is continuing a national and family tradition by investing this way. Once you understand that, you'll probably appreciate his desire to respect his roots. You might gently coach him about taking more risk to improve his financial returns. Perhaps he would be willing to diversify into one or more stock funds for six months or so.

I would hesitate to recommend big changes right away. But knowing that he has been following in his father's footsteps up to now, I think you can look forward to gradual success in helping him expand his investment approach.

Q: After my first meeting with an affluent couple from Argentina, I'm a little confused. When we talked about risk, they came across as conservative. However, they're not interested in government bonds, and anything to do with banks, such as stock, bonds, floating rate notes, even certificates of deposit, is off limits. I reminded them how secure Treasuries are, and emphasized that only a very few banks are in difficulty, but they're adamant. How can I get through to them?

A: I suspect your client couple's distrust is based on experience with the government and banks in their homeland. For example, while in Argentina recently, I heard about a foreign visitor who received counterfeit money from an ATM and was unable to get the bank to replace it with valid banknotes. (See A Well-Founded Distrust sidebar.)

So while accepting and sympathizing with your clients' feelings about banks and government policies in their native country, you'll need to remind them that things are different in the U.S. Since many Argentineans value American dollars and put their savings in foreign bank accounts, I believe that over time you'll be able to help this couple broaden their view of suitable places to invest.

When clients are affected by messages and traditions from their own ethnic or national heritage, try to understand the roots of their beliefs, and validate how their attitudes make sense from their perspective. This needn't take long, if you do it well. And by educating (or reminding) them about the differences between where they're coming from and where they are now, you can help them act in a way that takes better advantage of the opportunities America has to offer.

Q: I work with a wealthy Chinese expatriate who has always taken pride in sending money home to his extended family. It pleases him that they think of him as their rich and successful American "uncle." His wealth has also enabled him to put two of his three kids through some of the best colleges and grad schools. However, his business has done so badly in the recession that for the first time he has had to severely reduce the amount he sends home, and he can no longer afford a top school for his youngest child. I was able to talk him out of raiding his Keogh to make up the missing money, but since then he has become depressed and says he has "failed." How can I help him with this?

A: It's definitely a sign of success and prestige to be able to send money home once one has "made it" in America. I know many hard-working Vietnamese women in Washington, D.C., who provide financial support for their grandparents, aunts and uncles, and cousins back in Vietnam. Having to cut down (or eliminate) the money one has been sending home, even for a short time, is bound to feel humiliating to someone like your client.

The inability to pay for an expensive college for his last child is a further blow. The hardest thing for Asians to accept is not having more than enough money for their children's education, according to Rita Cheng, a multicultural financial advisor with Ameriprise Financial in Bethesda, Maryland. "More than saving for their own retirement, they care about their children's higher education," she points out. "That is paramount."

To help your client overcome his feelings of failure, you might stress that in America, it's not necessary to get an expensive education in order to be successful. Some of the nation's most prominent and wealthiest people are state university graduates, and of course Bill Gates never even finished college. If your client is set on an Ivy League diploma for his offspring, it still may be possible with the help of grants, loans, and work-study subsidies. Sharing the cost of an education with parents makes many students appreciate and value it more.

You could offer to meet with him and his college-bound child to explain the situation and brainstorm options together. As for the family in China, he might write them to explain that he is husbanding his resources now in order to be in a better position to continue providing for them.

The most important thing is to lighten your client's emotional burden by empathizing with his sense of loss, while helping him see that he is not to blame. Remind him that almost everyone else is feeling the crunch, too. This may lessen his sense of isolation and hopelessness, allowing him to strategize ways to get through this rough spot. By listening with compassion, you can help him begin moving through his grief and loss toward acceptance.

Olivia Mellan, a speaker, coach, and, business consultant, is the author with Sherry Christie of The Client Connection: How Advisors Can Build Bridges That Last, available through the Investment Advisor Bookstore at She also offers money psychology teleclasses for financial advisors and for the general public. E-mail Olivia at
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