Financial Tips for People New to the United States

Moving to the United States can be a dream-come-true for many people, but it involves many difficulties that needs to be overcome for a smooth transition, such as language barriers, transportation, and housing. Yet, the management of personal financial activities is an additional and important factor that is also needed by immigrants for a smooth transition. Below are several personal financial items that are essential for immigrants to understand, and to learn how to manage.

·       Although most businesses still accept cash in the United States, many people complete their transactions via a debit or a credit card. To help themselves quickly integrate to life in the U.S., it is important for newcomers to open a bank account in the United States and apply for a credit card. The major difference between debit and card cards is that debit cards are linked to a bank account. You must have enough money in your bank account to use a debit card for payments. Credit cards, on the other hand, allow you to borrow against your line of credit and pay back later. It may be challenging to apply for a credit card, but newcomers can try to apply for a secured credit card, which requires a deposit, to establish their credit history. After the financial system in the United States has their credit records, it is easier for newcomers to apply for credit cards. 

There are many benefits of having a good credit record in the U.S. For example, a solid credit history will help immigrants to obtain bank loans at lower interest rate in the future.  Yet to establish a good credit record, it is crucial for people to pay at least the minimum on their credit card every month. Making the minimum payment helps keep the credit record in good standing. However, the interest rates charged by credit card companies are usually high, so it is strongly recommended that consumers pay off their credit card balance every month.

·       Insurance is very important in the United States as it provides financial security to protect consumers and their loved ones. Newcomers should consider getting health insurance, as medical cost in the United States can be extremely high without an insurance plan. Health insurance is usually available and sponsored by employers. Additionally, if newcomers have their loved ones depending on them financially, it is necessary to get life insurance. Term life insurance usually charges a lower premium than whole life insurance and therefore recommended by financial advisors. Newcomers should also have auto insurance if they have cars, and home insurance if they buy or rent a house. It would be smart to shop around for a better insurance plan as the premiums charged by insurance companies vary. I also recommend newcomers to search and compare different insurance plans every few years. The premiums can be high for those who stick to one insurance company.   

·       Newcomers should pay off credit card debts before they make any investment as interest rates charged by credit card companies are usually much higher than the average returns investors can earn on stocks according to historical data in the financial market. Additionally, before making any investment, they need to build up an emergency fund that has savings to cover 3 to 6 months of living expenses. Since the purpose of emergency funds is to meet emergency needs, the money in the emergency fund should be invested in safe assets that involve little risk, such as savings accounts or money market funds. After paying off all credit card debts and setting up an emergency fund, newcomers can think about investments. For those who are not familiar with U.S. companies but want to have exposure to the stock market, one good starting point is index funds or ETFs (exchange-traded funds). Investing in index funds or ETFs is just like investing in the market. Because it is a passive investment, the fees charged by index funds or ETFs are usually low, helping to improve investment returns.  

·       Lastly, although it is not directly related to personal finance, obtaining a Social Security Number and getting a driver’s license are important steps to have a smooth transition to the U.S. Even if newcomers have no need to drive, it is still recommended to have a driver’s license because it is like an ID in the U.S.

Written by Dr. Hui-Ju Tsai. Hui-Ju is the James Price IV Associate Professor of Business Management and the Director of the Finance Minor at Washington College. She earned her Bachelor of Science degree in Finance with a Minor in Accounting at National Chengchi University in Taiwan, her Masters in Business Administration at National Taiwan University in Taiwan, and her Ph.D. in Finance from Rutgers University in New Jersey. Hui-Ju is a Chartered Financial Analyst (CFA) and has published numerous articles about the stock and bond market, corporate finance, risk management, and capital structure.