On Immigrants, Kids and Money

The first generation of immigrants from India arrived in America in the 1950's, 60's and 70's. (Yes, there were earlier immigrants from India, but their numbers were very small until President Truman signed the Luce-Celler Act in 1946). Most of them were skilled professionals who established themselves in a variety of fields, especially science, engineering and health care. This generation has now reached (or is about to reach) retirement age. I have always been curious about how they are dealing with retirement.
By most statistical measures, Indian immigrants have been one of the most affluent groups in America. According to the 2000 U.S. Census, Indian Americans had the highest median income of any ethnic group in the United States. Anecdotal evidence, however, tells me that many of the older Indian immigrants who are eligible for social security are still working, and usually out of necessity. In several cases that I know of, this is because they financially supported their grown children.
While first-generation Indian immigrants were generally in well-paid, in-demand occupations, their children have taken a more mainstream American route. This should not be a surprise; a grand American tradition holds that every generation expects to have more choices than the one that came before it. As John Adams wrote:

I must study politics and war [so] that my sons may have liberty to study mathematics and philosophy. My sons ought to study mathematics and philosophy, geography, natural history, naval architecture, navigation, commerce, and agriculture, in order to give their children a right to study painting, poetry, music, architecture, statuary, tapestry, and porcelain.
To rephrase this in contemporary terms, we studied Microbiology and Mechanical engineering, so that our children could major in Journalism and Communications. Regardless of the fields they choose, the majority of second-generation Indian kids grow up to be independent, responsible adults. Unfortunately, you also find many adult children in the community who are financially dependent on their parents to varying degrees.
According to The Millionaire Next Door, one of the seven characteristics of those who successfully build wealth is that their adult children are economically self-sufficient. For me, one of the most interesting parts of this book was where it explained what the authors called Economic outpatient care, which is the financial support provided by parents to their grown children.
The first generation of immigrants never received any economic outpatient care. However, when it comes to their children, many of the same folks do not hesitate to go well beyond normal parental obligations. It is common to hear about Indian parents who pay for a brand-new car for their child upon graduating from high-school, tuition at expensive private colleges and medical and professional schools, down payment for the house or condo, and a $25,000 wedding. While the truly affluent can afford to pay for these for their children, many parents do this at the expense of endangering their own financial security.
A joke among financial planners in India is that the only retirement plan that many people have is a plan to have more children (since the traditional expectation was that the children would take care of the parents in their old age). It is truly ironic then, that it is often the children that stand in the way of their immigrant parents retiring at a reasonable age.
The authors of The Millionaire Next Door found that financial help given to adult children resulted in more consumption, rather than saving or investing. The more gifts they received, the less they accumulated. Gift receivers also did not fully distinguish between their wealth and the wealth of their gift-giving parents.
So what can parents do to raise children who are economically self-sufficient? The book gives 10 rules for affluent parents and productive children, which I have summarized below:
  1. Never tell children that their parents are wealthy
  2. Teach your children discipline and frugality, by example.
  3. Ensure that your children won't realize you're affluent until after they have established mature adult lives.
  4. Minimize discussions of the items that each child will inherit or receive as gifts.
  5. Never give cash or other significant gifts to your adult children as part of a negotiation strategy.
  6. Stay out of your adult children's family matters.
  7. Don't try to compete with your children, or compare your financial status with theirs.
  8. Remember that your children are individuals. Do not try to "fix" inequalities by providing financial help.
  9. Emphasize your children's achievements, not their symbols of success.
  10. Tell your children that there are lots of things more valuable than money.

2 comments:

oldrambler said...

Nigel, I am impressed with the amount of thought you have put into this subject. I am close to retirement and have been fortunate in having a good life here in all respects, especially with the financial side of things. Finance is unlikely to be a major issue in retirement for you as well I think, especially with a little "luck" in life. I think there are several other things that one needs to consider in planning for retirement.

If you are a professional then I think the primary thing you have to do is develop some long standing interests in continuing your intellectual pursuits past retirement as long as you are physically able to. Developing relationships with family and friends is also important since you need a social network to function. What are your plans in this area?

When you have grown up children with their own families it brings up several other issues that you may not think is important now. You need to be able to integrate with them as well. In this regard how your spouce views distance from the children as a problem is going to affect your decision on where to retire. How do you think these factors will affect your plans?

Working towards a healthy lifestyle is vital. While one cannot predict how healthy one is going to be after retirement, thinking about healthy living early in life increases your odds of a healthy retirement. Your physical state when you retire is going to influence your decision quite a bit.

The consideration of moving to India to retire is a very common discussion item for people in my age group. Like in other areas of life, there are varied opinions. Many of the people I know tend to think that living part time in India, and part time in the USA is the best retirement solution if finances allow. Most of the soon-to-be retirees worry about the quality of health care, getting used to living conditions, weather, security and a dozen other concerns. I believe it is an individually determined balance of these things that makes a person decide how and where one is going to retire.

Good luck with your investigation and hope your blog stirs up additional thoughts from people close to retirement.

Nigel said...

Oldrambler,
Thank you for your comment and for the nice words. It is great to hear from someone with your experience and insight into the practical issues one is likely to run into in retirement.

My blog started as (and still is) a personal finance blog, and I admit that I haven't given much thought to the non-financial aspect of things. I so far have full support from my wife in planning for a retirement where we may not be close to our children. Of course, things may not work out that easily when we are actually close to doing it.

The other points that you mention are of great interest to me, and provide much food for thought. The idea of living part-time in India during retirement has great appeal to me, and if finances allow, it does seem to be the best solution.