CHAPTER 13
Multicultural Competence in Financial Planning: Understanding Your Client's Cultural Identity

A woman and her husband sat in front of their financial planner in awkward silence. They were in conflict around their approach to money and had come to the financial planner for advice. The woman described herself as “thrifty” and “frugal” and wanted to save as much money as possible. In contrast, whenever they got money, her husband wanted to spend it on items of varying necessity. In fact, he had a garage full of items that he wasn't using but still thought were of value. The planner hypothesized that the husband was an overspender, and that he was maybe even struggling with a hoarding disorder. The conflict between the husband and wife was evident in their meeting with the planner. The planner agreed with the wife and, in a kind and professional manner, suggested that the husband's mindset around money was unreasonable, recommending that he stop “overspending” and save more money. The husband left the meeting feeling disrespected, while his wife felt vindicated that a professional took “her side” in their ongoing financial conflict.

Sounds simple, right? But there is much more to the story. Since the financial planner didn't consider the cultural background of the clients, he missed an opportunity to help them come to a deeper understanding of their cultural identities and how they factored into their relationship [115]. It turns out that the woman was raised in a Midwestern, White community, where she was taught the importance of independence, savings, and frugality. In contrast, the husband was raised in South America, growing up in a world of economic insecurity and rising interest rates. It turns out that his approach to spending did not stem from a lack of financial literacy or some type of spending disorder. His desire to immediately buy things to have the option of selling them later made perfect sense given his experiences around money. He grew up in a country in which inflation was such a problem that the only practical approach was to use the money right away, assuming the currency would drop in value while the value of goods would only increase. So, in the context of his experiences, his desire to spend as quickly as possible made perfect sense. But instead of exploring the “why” behind his behaviors, working with the couple to come up with a plan to address his concerns in a multiculturally competent manner, the White, Midwestern financial planner agreed with the wife, attacking the husband's desire to spend without understanding the context. There was a disconnect not only between the couple, but also now one between the couple and the planner, as he was not working to better understand the mindset of his clients. The implications of such a meeting could be disastrous, both with regard to the relationship of the planner to the husband and within the marriage itself.

THE MULTICULTURALLY COMPETENT FINANCIAL PLANNER

The purpose of this chapter is to equip financial planners with a multicultural mindset so they can be more effective in their work with clients. As we have discussed throughout this book, clients come from diverse backgrounds, perspectives, and sets of experiences that can have profound impacts on the financial planning process and the client–planner relationship. Although the financial planning workforce needs to be more representative of the broader population in the United States, that is not the focus of this chapter. We do not attempt to address each segment of the population and how they should be served. Rather, we explore the specific ways that planners can be more effective in working with their clients through a better understanding of their own worldview and experiences, and a focus on areas of cultural identity and majority/minority group status, all of which affect the client–planner relationship and the financial planning process.

SELF‐AWARENESS AROUND MAJORITY AND MINORITY STATUS

Financial planners should consider examining the ways they are influenced by their own cultural identity and their minority and majority status across some important categories within that culture. The better a financial planner understands their own cultural identity, the more they will become aware of the biases and assumptions that can impact their work with clients. Becoming aware of how our own life experiences differ from those of others will help increase our empathy and effectiveness.

We are all vulnerable to biases that grow out of our own personal stories, experiences, family dynamics, and socialization. Additionally, human beings have an innate tendency to categorize things and generalize, which can contribute to erroneous or even harmful assumptions about people whose cultural identity differs from their own. Majority group members – as defined by historical power and influence in the culture, rather than just numbers – may have difficulty noticing their own biases because the values of their dominant culture are widely held and strongly reinforced. This is often referred to as “majority group privilege.”

Meanwhile, a member of a minority group may be reminded of those differences daily. For example, regarding socioeconomic class, those with lower income can be considered a minority group. They have less access to resources and less power in the culture than other socioeconomic groups. Their minority status increases their conscious awareness of how their socioeconomic status impacts their lives every day, recognizing how others aren't experiencing the same food insecurity, lack of access to good education, stable housing, and so forth. Conversely, someone who is upper‐middle class is likely to not have a daily appreciation of the benefits that their socioeconomic status confers. Their majority group status gives them the privilege to not have to be concerned about many of these stressors.

When we are members of the majority group within a culture, such power differences can be difficult to see. It's like asking a fish to describe water when that fish has never been on land. However, those who have minority group status in one or more areas are frequently made aware of how their experiences, opportunities, and concerns differ from the majority group. There are many aspects to majority group benefits and minority group challenges across a variety of categories within a culture. Race and gender quickly come to mind, but there are other aspects of majority/minority group status that can have a profound impact on a client's financial life.

RECOGNIZING MAJORITY GROUP PRIVILEGE AND MINORITY GROUP DISADVANTAGE

Being born in the United States at this time in history comes with an “invisible knapsack” of unearned privilege, where even the poorest among us have a quality of life that would be unimaginable to the poorest around the world – let alone throughout history. This, of course, is very difficult to grasp and acknowledge [116]. But the fact is, you did nothing to “earn” the privilege of being born at this time in U.S. history. It is no different than people who were born during the thousands of years of difficult periods on this planet. It just happens. Your special position, therefore, is not “fair” or “just.” It is just a mere accident of birth. Perhaps some credit can be given to your parents or grandparents, but that has nothing to do with you, even as you reap many advantages as a result.

The word “privilege,” as a noun, is defined by the Oxford Language Dictionary as: “a special right, advantage, or immunity granted or available only to a particular person or group.” In every culture, there are elements of privilege built in, which are unearned but offer benefits of the dominant culture and majority group.

For example, you are likely to enjoy some special advantages in the United States if you are middle‐class or higher, able‐bodied, male, heterosexual, English‐speaking, Christian, White, and/or come from a home with loving and involved parents. Being a member of the majority group in any of these areas comes with special advantages. They are not advantages inherent to themselves, but only in the context of the social structures in our country. For example, if you were a Christian in a primarily Muslim country, you'd likely feel marginalized or, at times, disadvantaged because the culture isn't oriented around Christian holidays, or doesn't extend the same cultural benefits to minority groups, and so on. Majority group status within every culture yields special unearned advantages and yet, those advantages can be challenging to see unless you view them from the perspective of the minority group.

Consider the example of able‐bodiedness. From the perspective of someone who needs to use a wheelchair, being able to get to the second floor of a building without the need for an elevator is a special advantage available only to able‐bodied individuals. With an elevator, getting to the second floor may no longer represent a “special advantage” that “excludes” someone who uses a wheelchair from accessing the second floor. In a similar fashion, people who are living at the poverty level are very aware of their minority status and the special advantages that money gives others.

The benefits of becoming aware of our invisible special advantages are many. If a financial planner can acknowledge the areas in which their majority status gives them special advantages, it will be much easier for them to be sensitive to the experiences of clients from diverse backgrounds. In turn, they can dramatically increase the effectiveness of the financial planning process with clients by building this awareness into their work with clients.

CULTURAL HUMILITY

The concept of cultural humility was developed to help physicians deliver culturally competent care. It approaches multicultural work from two orientations: (1) intrapersonal – developing an awareness of one's limitations to truly understand someone else's background and views, and (2) interpersonal – adopting a stance toward clients built on a foundation of openness and respect in attempting to understand the client's worldview [117]. Robinson, Masters, and Ansani identified the five Rs of cultural humility that provide a great framework for financial planners who are dedicated to providing services in a multiculturally competent manner [118]:

  1. Reflection: Approach every encounter with humility and understanding, with an openness to learning from the client instead of just teaching.
  2. Respect: Treat every client with the utmost respect and a dedication to preserving their dignity.
  3. Regard: Hold every client in the highest regard while not allowing unconscious biases to interfere in the planner's interactions.
  4. Relevance: Apply cultural humility in every encounter with our clients.
  5. Resilience: Embody the practice of cultural humility to enhance personal resilience and compassion toward our clients.

TEN AREAS OF CULTURE AND MAJORITY/MINORITY STATUS THAT IMPACT FINANCIAL PLANNING

For a planner to facilitate an awareness of their own culture, as well as the culture of others, the ADDRESSING acronym is a great place to start. This model was developed by Dr. Pamela A. Hays [119] and first applied to the area of financial planning in 2015 [115]. The ADDRESSING is an acronym, which stands for:

  • A: Age and generational influences
  • D: Developmental disabilities
  • D: Disabilities that are acquired
  • R: Religion and spiritual orientation
  • E: Ethnic and racial identity
  • S: Socioeconomic status
  • S: Sexual orientation
  • I: Indigenous heritage
  • N: National origin
  • G: Gender

Clients and planners will fall into either a majority or minority category in each of these areas. In the areas in which they represent minority groups, they are likely to experience unique challenges that majority group members do not face. The following categories are drawn from the work of Dr. Pamela Hays [120], who has also helped apply this model to working with people around personal finances [115]. It is a good idea for a planner to think about where in these categories they fall as well as where a client falls. This will help planners increase their awareness of the influence culture has on the thoughts, decisions, behaviors, values, and opportunities they and their clients experience.

Age and Generational Influences

Our age and generation have a significant impact on some of our experiences and the social expectations placed on us. Social movements of and influences on our generation help shape our worldview and experiences. In addition, there are often biases against older and younger individuals. Age discrimination has been such a concern in the United States that the Age Discrimination Act of 1975 was set in place to prohibit it in terms of employment. However, age discrimination can work in the other direction too. For example, younger financial planners are often viewed by clients as being less competent. Having a youthful appearance can be a major disadvantage in situations where someone wants to display competence and confidence. This happens because the younger a person looks, the more likely they are to elicit subconscious caretaking responses in others.

As a workaround for younger‐looking financial planners, the following research‐based psychological tactics have been suggested: (a) bringing in an older‐looking planner in the early stages of the relationship, (b) talking about and prominently displaying accomplishments, such as news articles, degrees, and certifications, (c) exuding confidence and reducing anxiety, because fear changes facial muscles and elicits caretaking responses in others, (d) expressing passion, which acts as an indicator of trustworthiness, and even (e) wearing glasses, which studies have found increase one's perceived trustworthiness and intelligence [121].

Developmental or Acquired Disability

In our earlier example, able‐bodiedness is a majority group advantage. If you or someone you love has a disability, it can have a profound impact on your daily experiences and your opportunities. It is important to note that not all disabilities are visible. Nonvisible disabilities include things like mental health challenges, learning disabilities, and chronic pain. As with many areas of diversity, these conditions are not necessarily noticeable and many clients won't bring them up unless prompted. However, they can be very important to the financial planning process. As such, a financial planner could simply ask during the discovery process: “Are there any disability‐related concerns for you and your family we should take into account in the financial planning process?”

Religion and Spirituality

A client's religious beliefs can be deeply entwined with decisions around money. It can be a primary motivator, the core of meaning and purpose in their lives, and have significant implications on their cash flow (e.g., tithing) and estate planning (e.g., bequests). Majority group status in this area is recognized as the degree to which the culture centers around traditions and holidays associated with one's religion. In the United States, the majority religious culture is that of Christianity, as evidenced by established holidays and a legal system based on a Judeo‐Christian framework. In more homogenous areas of the country, it can be easy to assume that if someone looks like you, they share similar religious values. However, this could very well not be the case. An important component of multicultural competence is to not make assumptions and to simply ask. For example, the financial planner could ask: “Do you identify with a religion or spiritual practice that could have an impact on the financial planning process?”

Ethnic and Racial Identity

When we think about cultural identity the first thing that comes to mind for many is that of ethnic and racial identity. An individual in the majority race will often be immersed in a culture that was built upon the foundation of their ancestors' values and traditions. For example, they are likely to share similar phenotypic characteristics (e.g., skin color) and cultural beliefs and values (e.g., individualism vs. collectivism) as many of the leaders, media personalities, and business leaders in their culture. An important goal for the multiculturally competent financial planner is to be aware that the lived experience of others, based on phenotype alone, is likely to be quite different than their own in many areas. How their experiences differ will not be known, nor should they be assumed, only that they are likely to be different.

A critical goal is for the financial planner to not inadvertently overlay their own cultural values and lived experiences onto the client. This is especially challenging when the financial planner has not yet come to terms with their own majority group status and its impacts in comparison to those with a minority group status. It is also challenging when the financial planner isn't aware of their own cultural values and how they differ from those of others, and/or has a lack of experience working with people from diverse backgrounds. When in the majority group, it is easy to just assume that “that's just how it is” or that “this is how it's supposed to be done,” without recognizing that many of the ways we look at finances, work, and family are just manifestations of our specific cultural biases.

In interacting with clients, it is critical that financial planners not inadvertently downplay or make excuses when clients talk about their experiences around discrimination or other sensitive topics. This is usually done with the best of intentions, such as when a planner might say: “Oh, I am sure that they didn't mean it like that,” when a client reveals that they felt mistreated by someone based on race. This type of negating is a red flag for the client that the financial planner doesn't understand their reality, often due to an unintended lack of awareness stemming from the financial planner's majority group status. Instead, if a client trusts a financial planner enough to talk about their experiences in this area, the financial planner should take it as a sign that a deeper rapport has been established, seeking to understand rather than trying to challenge the client's perceptions or beliefs about what happened or why. It can be very difficult for a majority culture member to understand the extent of a minority group member's challenges, partially because of their own feelings of sadness, guilt, anger, and/or horror that may emerge when confronted with a client's experience. In an attempt to not experience these negative emotions, it is natural for a majority group member to downplay the experiences of others, either out loud or silently.

In working with a diverse clientele, it is important to have some general hypotheses about cultural differences around money. For example, it is important for the planner to know where their client falls on the continuum of individualism, which focuses on the needs and goals of the individual, and collectivism, which focuses on the needs and goals of the community overall. For many clients, it is not just about one or the other, but rather a delicate and evolving interplay between balancing the needs of the individual with that of their family, friends, and community. This helps planners make recommendations with their clients' cultural identity in mind, instead of asking them to go against their families and communities, or dishonor traditions. Such cultural values are an important driver of motivation and can be critical factors in the financial planning process. When these values come to light, it is important to build them into the financial plan. However, it is also important to not assume that the client sitting in front of you has any particular set of values or that they are manifested in the same way that people who share the same racial features and/or ethnic identity may manifest them. It is important to approach all clients as unique individuals.

Socioeconomic Status

As we discussed earlier in the book, a client's socioeconomic status, especially in childhood, can have a profound impact on their beliefs about money and their financial behaviors. Many of our hardest‐working, most money‐vigilant clients developed their approach to work and money in an effort to escape financial struggle. Socioeconomic status is a great example of how majority status has advantages that can be out of the members' conscious awareness, while minority status and its challenges can be a daily struggle for those who hold them. Being middle class or above comes with special advantages. There are many things you don't need to worry about, including food, clothing, and shelter. In fact, you could likely go days, months, or even years not worrying about where you will get your next meal or how you will be able to pay your rent. If you grew up as middle class or above, chances are you were much less conscious of day‐to‐day challenges around money. In contrast, if you grew up poor, chances are you knew you were poor. In addition to possibly developing a scarcity mindset and anxiety about not having enough money, you were likely also acutely aware that there were experiences others were having on which you were missing out.

Sexual Orientation

Financial planner Joe felt like the meeting with Steve was going well, at least at first. There seemed to be a good rapport and he felt like he was going to be of great help to Steve. But then things took a turn for the worst. Steve was talking about his ideal retirement and his plans to buy a house in Hawaii. Joe asked Steve if his wife was on board with the plan. That's when things got uncomfortable. Steve paused, shifted in his seat, and then told Joe that he had a husband, not a wife.

Being heterosexual in our culture also comes with some invisible advantages. For many heterosexuals, it is not even something they think about. In contrast, for example, gay clientele are likely to have been acutely aware of their minority status for their entire life. To illustrate the point, if you are a heterosexual, consider the following: What was it like for you when you revealed your sexual orientation to your parents? How long did you wait until you told them? Did you hide it from them? Were you worried they would be angry or that they would reject you? Did you let your friends know first before you told your family? If you are a heterosexual, you never had to think twice about any of these issues – a great example of majority group privilege. Recognizing your own journey, and the assumptions that emanate from that journey, can help the multiculturally competent financial planner avoid awkward conversations with clients (who may become former clients) like Joe's conversation with Steve.

Indigenous Heritage

Clients with an indigenous heritage, such as those who belong to a Native tribe or nation, such as Native Hawaiian, First Nations, Alaska Native, or Native American, often present unique financial planning perspectives and needs. Many members of such groups have endured significant trauma both individually and collectively over time. Clients who are connected to their indigenous heritage may also have a unique set of values, concerns, and goals important to the financial planning process. In some cases, this could include a deep sense of duty and connection to their community.

National Origin

A client born in the United States with English‐speaking parents is at a huge advantage in our culture. In contrast, those who immigrated to the United States and/or speak English as a second language face unique challenges. Even if a client didn't immigrate in their lifetime, many are aware of the stories of struggle, hardship, and prejudices their parents, grandparents, and/or great‐grandparents endured in their attempts to integrate into the majority culture of the United States. In the financial planning process, it is important to be sensitive to how a client's nationality impacts their financial lives with respect to both challenges and opportunities. When working with immigrants, it is important for the financial planner to be aware of the concepts of assimilation and acculturation and their impact on the financial planning process. A client who has assimilated may have adapted and integrated into the majority culture in many ways. Their level of acculturation refers to the degree to which they have maintained aspects of their previous culture. To avoid making mistakes when it comes to the financial planning process, the key for financial planners is to maintain cultural humility. The best strategy is rather simple – approach all clients with an open and curious mind and ask about their values and goals, avoiding any assumptions about how much their client identifies with the majority culture.

Gender

Historically, girls have been raised with different experiences, values, and exposure to money, which has had devastating consequences for women. These consequences include more problems around money, less income in adulthood, and more financial vulnerability in old age [122]. Studies have found that families equip boys with more opportunities to learn about money than they do with girls, and boys are more likely to be included in conversations around family finances than girls, who are more likely to be excluded [50]. How we are socialized around gender can impact not just our finances but also our relationships. Women who go against traditional gender norms often experience negative social and relational consequences. For example, women who earn more than their male partners tend to report feeling less connection with their partners, more disapproval around their partner not meeting their expectations, and are more likely to use blame language in talking about their relationship around money [49].

Financial planning has been traditionally a male profession geared toward males. In fact, studies have shown that as many as 87% of women who are looking for a financial planner say they were unable to find one with whom they could connect [123]. Meanwhile, it is estimated that by 2030, approximately 75% of the wealth in the United States will be influenced by women [124].

Multicultural competence in financial planning requires financial planners to modify their approach to better serve female clients, and financial psychology can help. To provide more effective services to women, Lindsey Larrabee, CPWA®, FBS®, and Dr. Brad Klontz, CFP® recommend that financial planners do the following [125]: (a) focus on using better listening skills – such as reflective listening – to help establish trust, help the client feel fully understood, and explore her thoughts and feelings; (b) adopt a collaborative rather than expert–client approach that includes opportunities for ongoing financial education; and (c) create a financial plan that aligns with the client's needs, values, and goals, which include positive emotions, healthy relationships, and the pursuit of meaning.

Humans are complex, and effective client–planner relationships require planners to meet clients where they are with regard to their life experiences, financial behaviors, or their life journey. Although clients bring with them a unique cultural identity across many domains, the approach to being a multiculturally competent financial planner is simple: Recognize your own worldview, approach others with cultural humility, and be unassuming, vigilant, and responsive to the worldview and lived experiences of your client. By taking this thoughtful approach and using sound judgment, financial planners can effectively serve and positively impact a diverse group of clients from a variety of backgrounds.

KEY POINTS

  • Financial planners need to develop a multicultural mindset to optimize their effectiveness in their work with clients.
  • The financial planner needs to recognize their own as well as their client's majority/minority status in the areas of cultural identity to be more client‐centered.
  • Financial planners should approach client interactions with cultural humility, recognizing their own biases, embracing learning, and adopting a stance built on openness and respect in attempting to understand the client's worldview.

CFP BOARD LEARNING OBJECTIVES COVERED IN THIS CHAPTER

H.65. Client and planner attitudes, values, biases

  1. Analyze a client's degree of risk tolerance and loss aversion and ensure recommendations are consistent with a client's risk propensity, attitudes, composure (e.g., past behaviors during market corrections), capacity, knowledge, and needs.
  2. Explain how a client's psychology, background, preferred learning style, and values (socially conscious investor, etc.) impact the financial planning process.
  3. Explain how a client's values, including cultural and religious values, and attitudes may impact their goals and the financial planning process.
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