Influence of Culture on Financial Behavior

Travel has made me a better investor. Living in other countries helped me challenge my cultural assumptions and biases - especially around investing. For one, it’s helped me overcome my “home country bias” 🏠 Researchers have called it “one of the major puzzles in international finance”. Portfolio theory tells us that we should invest across domestic and foreign markets to get higher returns and lower volatility. Yet, contrary to this common wisdom, decades of numerous studies conducted around the world have shown that we just don’t do it as much as we know we should - including professional asset managers! Spending time living in foreign markets has helped me to identify opportunities people back home simply don’t know about. A lot of Americans I know are worried about keeping their money in a foreign currency. What safer, surer currency to hold than the Amercian greenback, right? But many are shocked to learn that over 20 years, the USD has actually depreciated nearly 30% against the Singapore dollar! 📉 If you had simply converted $100k of greenbacks into Singapore dollars and stashed it in a (very large) piggy bank in 2003, it would be worth an extra $28.5k today. Who'd have imagined a piggy bank of foreign notes could deliver a 1.26% annual interest? 🐖 On the flip side, I’ve seen how other cultures have deeply held beliefs on which asset classes are a “safe” investment. For example, in the “Asian tiger” economies like China or Singapore, real estate is commonly considered a “safe” investing vehicle, while stocks or index funds are considered "risky". I’ve debated many Singaporean friends about whether to buy a house with their partners - or to rent and invest the rest into an index fund like the S&P500. Leaving the actual numbers aside, most of them have never even thought to question the financial viability of buying versus renting. Their parents made money in the early decades of Singapore’s real estate boom. The government encourages it through subsidized public housing for married couples. And thus it has become enshrined in the cultural consciousness of Singaporean investors. When I was working in India, I saw how much they preferred gold over other asset classes like equities - making India the world's single largest consumer of gold. It accounts for nearly a third of the world's gold market: four times the demand in all of North America. Yet over the last 100 years, the Dow Jones Industrial Average returned over six 6 times the appreciation in gold prices! Recognizing and questioning these cultural biases and idiosyncrasies around us can be challenging. But the key is determining what cultural investing ideas are still positively serving you, and which of them you may need to let go - so you can seize opportunities where others are leaving money on the table. How much are we really giving up by not questioning our cultural assumptions? What other cultural biases have you seen in personal finance and investing?

Do Māori face a choice between cultural wealth and financial capital? Stats NZ data from Te Kupenga highlights a persistent and revealing paradox: Māori who are richest in cultural connection generally have lower material wealth. To be clear, this is not a choice Māori are making but rather one that the institutional framework of Aotearoa forces upon them. Māori who regularly visit their marae, speak te reo, or practise traditional food gathering report high levels of cultural wellbeing and identity. These forms of cultural wealth—grounded in whakapapa, whenua, and whanaungatanga—are more prevalent among Māori living in rural or isolated areas. Yet, these same individuals are more likely to live in overcrowded housing, face unaffordable living costs, and lack access to essential services. Fewer own their homes, and many report lower incomes, fewer employment opportunities, and greater barriers to accessing healthcare and education. In contrast, Māori with higher incomes or more secure housing are more likely to live in urban areas, where access to economic opportunity is greater but cultural connection is often weaker. Urban Māori are less likely to visit marae regularly, speak te reo, or engage in traditional practices. This pattern reveals a structural contradiction: the systems that generate material wealth often separate Māori from their cultural wealth. To overcome this, to ensure that Māori do not have to sacrifice one type of wealth for the other, requires viewing economics in a more holistic and humanist manner. It also requires evaluating the social return on investment as much as the economic benefits so that the true dynamics of wealth generation can be understood, for ‘financial capital’ is an abstraction that can only exist with cultural wealth and wellbeing.

In the intricate dance of family dynamics, the silent whispers of financial habits passed from one generation to the next often go unnoticed. Yet, these inherited narratives profoundly shape our approach to money. **The Family as a Culture** A family isn’t just a group of people who share DNA or a home; it’s a mini-culture with its own unwritten rules, values, and, significantly, financial practices. Whether it’s the frugality of a grandmother who lived through economic hardships, or the lavish spending habits that were a norm in the household, these elements form a financial blueprint that we carry into adulthood. **Emotional Unity and Financial Behaviors** Psychologists often view the family as one emotional unit. This perspective helps us understand that financial decisions are rarely just about money—they’re about emotions, relationships, and history. Our financial attitudes and behaviors, whether we recognize them or not, are often emotional reactions to the financial climate in our family of origin. **Lessons from Our Parents** From a young age, we’re taught lessons on how to interact with money. Sometimes these lessons are explicit, like a parent teaching about budgeting. Other times, they are implicit, observed in the ways our parents handle (or avoid) financial discussions and crises. These lessons become our financial ‘scripts,’ guiding how we manage money in our adult lives. **Choosing or Refusing the Family Narrative** As we grow, we face a choice: continue the financial patterns we’ve observed or forge a new path. Some may replicate their parents’ behaviors, finding comfort in the familiarity, even if it’s not the healthiest financial path. Others might consciously choose to break away, driven by the desire to avoid past financial mishaps witnessed within their family walls. For anyone navigating the complexities of financial behaviors influenced by family systems, remember, the goal isn’t to assign blame but to foster understanding and growth. As you reflect on your family’s financial culture, ask yourself: Which parts do I want to keep? Which parts do I want to change? The answers to these questions are the first steps in defining your own financial identity, independent of, yet respectful to, your roots. --- In the realm of financial psychology, understanding the intersection of family dynamics and financial behaviors is not just about managing money—it’s about managing life’s intricate emotional landscapes. By dissecting and understanding these familial financial blueprints, we pave the way for not only financial independence but also emotional resilience.

What is the relationship between Bitcoin and Culture? And why does the enthusiasm for Bitcoin seem to resonate more in certain parts of the world? I am far from being a financial expert, but I find it fascinating to understand why people in some countries find themselves more captivated by the promises of Bitcoin. The intersection of culture and finance is not new. A range of studies shows that cultural values shape our financial behaviours. For example, our preferences for long-term investment versus quick gains, how much we save for a rainy day, and our tolerance for financial losses are all influenced by our cultural backgrounds. How is Bitcoin related to Individualism? Individualism and collectivism are important cultural values that have been shown to affect financial decision-making and outcomes in various ways. If you grew up in an individualistic culture, you may be more enthusiastic about the rise of Bitcoin. A recent study investigated the relationship between individualism and a country's Bitcoin activity across 80 countries from 2009 to 2020. The findings reveal a significant and positive correlation between a country's level of individualism and its adoption of Bitcoin. Why does the Individualistic mindset play a role in shaping the demand for currencies and investments like Bitcoin? Here are several explanations that may shed light on this connection: • FREEDOM – people from Individualistic cultures view Bitcoin not just as an investment but as a symbol of financial self-determination. With its decentralized nature and promise to reduce reliance on traditional financial institutions, Bitcoin resonates more with those who value personal freedom and question the established financial systems. • RISK-TAKING – In individualistic cultures, people may be more inclined to take risks and engage in activities with potentially higher rewards, as the emphasis on personal achievement may outweigh the potential consequences of failure. • (OVER) CONFIDENCE - Individualism is linked to overconfidence, which can manifest in self-enhancing beliefs, where individuals perceive themselves as more skilled, leading to an underassessment of the risks associated with Bitcoin. For instance, when public information about a stock is released, investors in individualistic societies rely less on this news and give more weight to their private beliefs about the company's value. What observations do you have regarding the link between culture and cryptocurrencies? And what other cultural values might influence our financial behaviours? #globaleconomy #globalmindset #culturaldiversity #culturalintelligence P.S. If you enjoy reading research, follow this link: https://lnkd.in/eviQK-PP  

Tomorrow sees the start of the year of the snake in Chinese astrology. Does astrology have an impact on financial behaviour? This study finds it does: It looks at Chinese firms and focus on widely held beliefs in bad luck during one’s “zodiac year,” which occurs on a 12-year cycle around a person’s birth year, to study superstitions and risk taking. Findings include: 1. Individual investors risk appetite is impacted. There is a direct correspondence between zodiac year and risk taking via survey data: respondents are two percentage points more likely to favor no-risk investments if queried during their zodiac year. 2. Corporate decision making is also influence. The study finds that return volatility declines in the chairman’s zodiac year, suggesting a reduction in risk taking overall. 3. Investment in R&D and corporate acquisitions both decline during the chairman’s zodiac year; returns around acquisition announcements are also lower, suggesting real allocative consequences of zodiac year beliefs Here is the study: https://lnkd.in/enzMfFAa And here is a great explainer of Chinese astrology: https://lnkd.in/epwbseXA