Financial Planning for First- and Second-Generation Immigrants
Many of us have heard of the “sandwich generation” — the age when people are both taking care of growing or young adult children and navigating care or health concerns for their aging parents.
However, this term doesn’t quite encompass the experience of immigrant families. While they are technically “sandwiched” between caring for their parents or family and themselves, additional dynamics make financial planning for immigrant families especially unique.
That’s what we want to dive into today: How to support a multi-generational immigrant family through financial planning.
NOTE: This article was written by Huyen T. Nguyen, a Resident Financial Planner at Guiding Wealth and a first-generation immigrant who has worked with multi-generational immigrant families.
Understanding first- and second-generation immigrant family dynamics
Before we discuss the nuances of financial planning for first—and second-generation immigrant families in an article, we’ll need to define these terms.
First-generation immigrants are people who immigrate from another country to the US and are the first in the family to become a US citizen. Very often, to support their family, first-generation immigrants take on multiple jobs in poor working environments — credited to language barriers and lack of required qualifications.
Some first-generation immigrants, however, work as professionals. They often have a college or graduate degree and, as a result, have better careers and financial resources. We’ll call them professional first-generation immigrants. Their mindset is very different, and it influences their children, the second-generation immigrants. However, they could find themselves as the sandwich generation, supporting families abroad while caring for their children in the U.S.
Second-generation immigrants are often the offspring of the first-generation, who may or may not have been born in the US but have lived in the country since a younger age. They’ve likely been exposed to American culture more than their parents’ original culture.
It is often difficult for the second generation to say no to their parents or extended family. It’s culturally expected that the child will take care of the parent, especially after everything a first-generation immigrant parent has done. Naturally, these adult children are more than happy to provide financial relief and some luxury to their parents’ lives.
The perfect case in point: Eva. Eva came to the US with her parents at age 5. All through childhood, she watched her parents work two jobs, often leaving home early in the morning and coming back near midnight. They barely made ends meet. As Eva grew up, she was determined to earn a college degree and get a good job. Not only did she wish for a respectful, well-paid profession, but she also knew she would have to take care of her parents when they got older. As she excelled in her career, Eva and her husband were able to give back to her parents, taking care of their needs, buying them cars, paying off their mortgage, and taking them on vacations.
When asked about her personal financial goals, Eva was hesitant to share. She had been so focused on helping her parents and raising her own children that she and her husband had not talked much about their goals. They knew vaguely that they were “OK” financially. There were concerns — like when they think about the cost of college for their three children and the cost of care for Eva’s (and her husband’s) parents in old age.
Stories like Eva’s are incredibly common for second-generation individuals trying to balance their current financial picture and the expectations of caring for aging generations (parents, grandparents, extended family, etc.).
As financial planners, we help our clients take care of not only their parents but also themselves. Based on my experience, I have developed tips to help you best serve immigrant clients.
First, we’ll talk about soft skills and what to expect when working with immigrant families (whether it’s a single person or multiple generations). Then we’ll move into the harder skills, including how to create plans for people who are walking the line between their own needs and the needs of their families.
Soft skills to help you plan for multi-generational families
Cultural expectations
When you work with a client who is an immigrant, it’s important to get to know their culture and be sensitive to their choice to support their loved ones.
Example: Huyen (the writer of the article) once reviewed a Mexican-American couple’s tax returns and learned that they used all of their income to support their children, parents, and even their nieces and nephews — a total of 14 people.
When Huyen praised them for their generosity, the husband shrugged and said, “That’s what we are supposed to do. They are family, we cannot ignore them.” Then he added, “Some of my American colleagues think we are crazy!” To them, building savings when they have family members in need is unheard of.
As financial planners, understanding long-held cultural traditions and norms is essential before giving suggestions.
Questions to ask clients
- Are you financially responsible for anyone besides a spouse and/or children?
- What are the expectations of financial support for those individuals?
- How well do you feel you’ve been able to provide for them in recent years?
- What are your goals for supporting them financially? Do you want to continue to do so or would you like to eventually stop?
Client & family biases
We often hear about biases when working with second-generation immigrant clients. These may not apply to everyone, but they are useful to keep in mind:
Death may be a taboo topic
There is a stigma against discussing death in most Asian cultures. Therefore, when discussing life insurance or estate planning, it’s wise to mention that it is a taboo topic and ask for permission to discuss it. It’s also easier for clients to process the information if the death is mentioned in a story that applies to a third person.
Instead of saying: “Let’s talk life insurance.”
Ask this instead: “After you have lived a long, happy life with your loved wife/husband, how would you want your wealth to be used?”
Tread lightly when it comes to “risk”
“Is there an investment option that guarantees not losing money?” Every financial planner will hear this question, and it all stems from a desire for security. After witnessing their parents’ struggles, many second-generation clients vowed to have a richer life. That may mean shying away from the notion of risk.
If you see this dynamic in your clients, here are two important things you must know:
- You might need to start with the basics. Have conversations about risk and returns, and make sure they understand the different types of investment opportunities.
- Help them avoid fraud & investment schemes. The fear of losing principal makes immigrant families vulnerable to inappropriate annuity and life insurance schemes.
Trust must be earned
Cultural differences are one of the barriers that stop first- and second-generation immigrants from seeking financial advice. Adding industry jargon and terminologies will only make it harder for clients to feel comfortable and open. Likewise, you will be amazed at the impactful cultural etiquette you can learn with just a few minutes of googling.
Financial planners should offer extra time and care to build a relationship with these clients and understand their level of comfort and education around money. It is always a good idea to be extra transparent, give them more time to process, and ask more follow-up questions to ensure they understand whichever content you convey.
Emotional acknowledgement
Financial planners are a source of support for clients dealing with a lot of financial stress. Many of the immigrant clients you might serve are the ones in the family who’ve “made it.” As mentioned earlier, that means they may be supporting multiple generations of their family tree. Even if they’re handling their financial responsibilities well, be intentional about acknowledging the stress of being financially responsible for others, and give them credit for the hard work they’ve done.
Oftentimes, second-generation clients don’t have opportunities to talk about their worries, feelings, and the pressure of being the one to provide for everyone. As their financial planner, we have the unique opportunity to help them navigate these feelings.
They may feel trapped and burdened but cannot articulate these feelings because they fear that by feeling these emotions, they will no longer be good and generous people. At the same time, they also feel grateful and glad that they can help their loved ones.
Acknowledging both negative and positive feelings will help clients feel accepted and have the ability to make confident financial decisions that align with what they want.
Hard skills to help you plan for multi-generational families
Multi-generational planning
To really create a positive impact for your clients, help them build a financial picture and goals that includes everyone.
In a multi-generation family, your client may have more than one mortgage, larger-than-normal emergency funds, and/or a delayed retirement date. If you want to work with a second-generation immigrant or multiple generations with the same family, prepare to be flexible and adaptable.
A single emergency may require a client to use retirement funds sooner rather than later, steeply impacting their retirement plan. Of course, because you understand how important it is for them to put their loved ones first, you’ll be better able to adjust their plan and move forward with new steps.
Financial coaching
Healthy boundaries are not something we all have with our families, but they are vital when building a financial plan for extended families. That’s why it’s often important to coach your clients on how to draw boundaries that fit with their values while preventing risk to their overall well-being. It’s not uncommon to hear from people in their 60s who regret not saving for themselves first in those high-earning years.
To coach clients through these boundaries, you first have to get to know their goals and how they’re funneling their current assets to those goals. For example, your client may say their top three priorities are their retirement, their parents’ health, and their children’s education. However, in reality, they often give in to more immediate demands and neglect saving for retirement. With the help of a financial planner, clients can build habits that help them refocus on their goals, like automated retirement account savings.
One of Huyen’s clients, for example, gave 50% of her income to siblings, nieces, and nephews to help them get on their feet. Now retired, she wishes she had better prepared for her own retirement back then. It’s hard to say no or take action without clear goals. You may need to explicitly tell your clients that it is alright that they set goals ensuring they’re taken care of in their older years as a clear, non-negotiable goal.
Additional techniques to support second-generation financial planning
It’s worth stating that financial planning for second-generation immigrants does not veer far from typical financial planning. What makes it different, and more challenging is their additional care and responsibility to their first-generation family. With that in mind, here are some additional tips to help you serve your second-generation clients well:
Spend an ample amount of time focused on understanding their family’s needs
List out every potential expense that could come from supporting a multi-generational family. From there, sort them in the order of importance and timeline. Help your client think through each scenario, form solutions or courses of action, and decide on how they would want to handle those situations before they become reality. For example, what would their life look like when their parents are nearing the end of their lives? Who will take care of them — the client or a caretaker? Where is the financial source to support that care? And how can clients prepare today so that it won’t affect their retirement goal or saving for their children’s education?
Again, these are all fairly similar approaches to a “traditional” client financial plan, but the cost is amplified as the number of individuals increases! Knowing the future financial needs to support their parents may incentivize clients to save more. It will also influence the frequency and the type of vacation they take, or the kind of house and car they may purchase.
Focus on liquidity strategies
Not everyone can shore up sizable savings, and some emergencies may cause clients to be short on cash. Find ways to increase “cash on hand” so your clients are prepared for big emergencies and protected from getting into high-cost short-term debts. Options such as HELOC, loans from whole life insurance or qualified retirement accounts, and reverse mortgages can be useful in certain circumstances. However, they require thorough consideration of pros and cons, cost benefits, and ample amount of time to process. If you know clients are likely to run into liquidity issues, plan and prepare ahead.
Utilize tax credits
Clients can claim their parents as dependents if they provide more than half of their support and if their parents earn less than $5,050 of gross income (as of 2024). If they need to hire someone to take care of their parents while they are at work, they are eligible for the child and dependent care credit, which offers 20% of up to $6,000 eligible expenses for two or more dependents (as of 2024), provided that they are married and filing jointly. They may also be eligible to deduct their parents’ medical expenses if they amount to more than 7.5% of their adjusted gross income and use itemized deductions on their taxes.
Outline detailed survivor scenarios
One of the main concerns of second-generation immigrant clients is: “What happens if I die?” Building out detailed survivor scenarios often soothes their fears. Many clients are not aware of the fact that their dependent parents are entitled to receive a portion of their Social Security benefits as survivorship, as long as they have accumulated 40 qualified credits. Knowing the worst-case scenarios and how they can handle them is the key to peace of mind and financial success. Often at this point, the need for life insurance becomes prevalent as they can see how it can bridge the gap between the lack of resources and their parents’ needs in old age.
Create trusts
Trusts can be a great tool for caring for your clients’ parents. For example, let’s say a couple is taking care of the husband’s parents. In the husband’s will, he can set up a testamentary trust to direct certain assets to be used for his parents’ care in case of his untimely death. Their financial planner might also recommend putting life insurance proceeds in this trust (or using the trust as a beneficiary) to care for his parents.
For parents who are receiving Medicaid benefits, it is important to structure the trust so that it won’t interfere with their benefits. For example, the trust can be set up to provide supplements to their living costs only using the HEMS (health, education, maintenance, or support) provision. The trustee is required to consider their government benefits when making distributions.
Deepen your financial planning skills — and make a deeper impact
When working with second-generation immigrants, it’s critical to come to each discussion with a deep understanding and respect for their culture and traditions. Even if you are unfamiliar with a client’s culture at the start, take the time to get to know them, their traditions, their goals, and their wishes for themselves and their family.
By deepening our skills and practice, we can create a deeper, more lasting impact for our clients—for generations to come. Working collaboratively with these families ensures that we respect their heritage while helping them navigate the complexities of caregiving and planning for the future.
—
Here at Amplified Planning, we believe in helping financial planners learn how to work with diverse clients. Subscribe to our newsletter if you’d like to stay up-to-date on our latest resources and guides just like this!
