Immigrant Financial Market Participation: Defining the Research Questions

By Newberger, Robin; Rhine, Sherrie L. W. et al. | Chicago Fed Letter, February 2004 | Go to article overview

Immigrant Financial Market Participation: Defining the Research Questions


Newberger, Robin, Rhine, Sherrie L. W., Chiu, Shirley, Chicago Fed Letter


The strong growth of the immigrant population in recent years, coupled with their lower average income and educational levels, makes financial access an issue of broad concern. A national conference in April 2004 aims to encourage policy-oriented research and to identify public-private partnerships that can help bring the foreign born into U.S. financial markets.

Between 1990 and 2000, the foreign-born population in the United States grew by 57% to 31 million people. Immigrants represent about 11.1% of the total population and 12% of the total civilian labor force.1 Despite the increasing economic importance of immigrants, the foreign-born are less likely than their U.S. counterparts to use a wide variety of financial services.2 Their financial integration may be hampered by lower household incomes, language and cultural differences, and inexperience with domestic financial institutions.

Ensuring fair and equal access to transaction accounts, consumer-related credit, business financing, and other bank products or services is central to the mission of the Federal Reserve System. Laws such as the Community Reinvestment Act, the Equal Credit Opportunity Act, and the Fair Housing Act aim to encourage the provision of mainstream financial products and services to all sectors of society. The benefits of banking relationships are far-reaching. Transaction account ownership provides individuals with useful tools for effectively managing personal finances and contributes to asset building (e.g., savings accounts) and wealth creation (e.g., homeownership). From a community perspective, greater participation in housing and credit markets can help promote neighborhood stabilization and revitalisation. While an extensive literature has examined immigrant labor market and homeownership assimilation, there has been little academic research on access to financial markets for immigrants.

In April 2004, a national conference, Finandal Access for Immigrants: Learning from Diverse Perspectives, is being cosponsored by the Federal Reserve Bank of Chicago's Center for the Study of Financial Access for Immigrants and the Brookings Institution's Center on Urban and Metropolitan Policy.3 The conference will draw on the expertise of national researchers, community development professionals, financial institutions, and government agencies to discuss immigrant access to financial services. It is designed to encourage future policy-oriented research and to identify public-private partnerships to help bring immigrant communities into the financial mainstream.

In anticipation of the conference, this Chicago Fed Letter provides an overview of key topics related to immigrant participation in financial markets.

Characteristics of the immigrant population

The strong growth of the immigrant population in recent years, coupled with their lower average income and educational levels, makes financial access an issue of broad concern. Compared with the U.S.-born, about 20% fewer of the foreign-born population aged 25 or older had completed high school as of 2000. In addition, foreign-born households have lower incomes on average than U.S.-born households, even taking into account differences in household size and the number of earners. A greater proportion of the foreign-born have fewer years of residence in the United States, a higher rate of non-citizenship, and potentially less experience with the U.S. financial system. The fraction of the foreign-born population residing in the United States for 20 years or more dropped from 50% in 1970 to 32% in 2000. In addition, 37% of the foreignborn were naturalized citizens in 2000, down from 64% in 1970. An immigrant's banking decisions are likely to be substantially influenced by his or her age, educational attainment, income level, years of U.S. residence, or citizenship status.

The location decisions of many of the foreign-born population in the U.S. have made their integration into local economies a concern at the national level. …

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