How to Save Money Like an Immigrant

It happens everywhere: Latinos arrive in a new American town, work and save like crazy, and within a few years, voilà! They’re opening businesses and buying homes. At a time when the rest of us are choking on major credit card debts, immigrants often save a fifth or more of their income and are 30 percent more likely than nonimmigrants to open a business.

How do they do it when the average immigrant earns just $11 an hour? It’s simple: While most transplants start out poor in funds, they are rich in social ties and draw on personal relationships—not high-interest loans—to save, spend and build up their money.

Following these six simple cues from our immigrant brethren might just be the best thing you ever do for your wallet.

1. Money 1

Invest in People, Not Just Stuff

“The majority of immigrants come here with just one financial goal: to help their families,” says Omar Garcia, a staff member at the Mexican Consulate in New York City. That focus on aiding others (versus accumulating material wealth for themselves) is part of what makes immigrants such good savers.

When New York arts educator Aurora Olivares* wants to save for a big-ticket item, like a pair of $300 Geox boots that she recently had her eye on, she’ll usually fall short of her goal with an impulse buy. But she manages never to touch the $1,000 she saves each December to send to her Mexican immigrant mother in L.A. Working an extra job during the holiday season left her with no weekends, “but I just kept thinking about what it means for my mom,” she says.

There’s actually science behind Olivares’s commitment: A number of studies show that when we donate money or gifts to others, our brains release chemicals, such as oxytocin, that make us feel happy, sociable and relaxed. En cambio, when we spend cash on expensive items for ourselves, we’re more likely to experience feelings of anxiety or guilt. So if you’re having trouble saving up for a lavish vacation or that plasma TV, try putting away dollars for your sister’s college tuition instead. Maybe she’ll become a doctor one day—a clear benefit for everyone.

2. Money 2

Break Out the Old Bunk Bed

As a child in Queens, N.Y., Katherine Martinez hated the endless Rice-a-Roni her thrifty Peruvian immigrant mother bought with clipped coupons. “I didn’t even realize name-brand clothes existed until we moved out of the neighborhood,” she remembers. Today, the high school teacher, 31, buys herself nice clothes and shoes, but she draws on one of her parents’ best cheapskate habits to get ahead financially: living en familia.

Three years ago, Martinez and her sister Mariella moved back in with their parents. While their social lives took a hit—“My parents would make comments about me going out, like ‘Why are you coming home so late?’ ” Martinez says—the sacrifice paid off. Mariella has now saved up enough to buy her own home, while Katherine is close behind.

Considering the average American spends more than a third of their budget on housing, living with relatives or roomies is one of the smartest financial choices anyone can make.

3. Money 3

Start Your Own Savings Club

Whether they call them tandas, cundinas or sociedades, these group savings clubs are common among Latino immigrants—in one California study, almost half of immigrant women said they use them.

Here’s how they work: Fulana needs $1,000 to start her tamal business, so she gets 9 friends together, and they all agree to kick in $100 every Sunday, resulting in a $1,000 pot. Then, for the next 10 weeks, they take turns getting the group’s joint savings, until all 10 women have collected. For those who get paid first and then have to keep contributing, the tanda becomes a no-interest loan. For the last to collect, it’s just a simple way to save up for a big purchase. (The collection order depends on the tanda; most use a random, lottery-style system.)

What makes it work? The social pressure. “If I’m just saving on my own, it’s really hard to say I’m going to put this money away,” says Cristela Soto, a Chicana engineer in Shafter, Calif., who uses tandas to pay the taxes on her home. “But when you’re doing a tanda, you feel forced to save, because you don’t want to burn the other people and get a bad reputation.”

Sandra Rivera, a Colombian and Puerto Rican government worker in Washington, D.C., started a 21st century tanda. She and eight friends—all highly educated Latino professionals—have participated in the savings club for the past three years, complete with signed contracts, online banking and a Yahoo e-mail group. Through this method, more than half the members have now bought their first homes. As long as you do the tanda with people you know well and trust, “this is an old tradition that works,” Rivera says. “We don’t have to reinvent the wheel.”

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Benefit from Barters

The exchange was simple: Instead of shelling out $30 every week at a salon to get her hair blown out, Dominican American college student Bianca Frias called on her sister-in-law’s expert flatiron skills. In turn, Frias babysat her niece for free one summer.

This kind of bartering is typical in the immigrant economy, where “it’s all based on reciprocity,” says Arizona State University professor and tanda expert Carlos Vélez-Ibáñez.

So if you’re a typical second-generation Latino who is paying for a ton of extra services (car service to the airport, anyone?), draw on your social networks and see how much some mutual, immigrant-style back-scratching can save you.

5. Money 5

Don't Spend Money You Don't Have

Immigrants rarely have credit cards. When they need money, they save first, or borrow from friends and relatives. All of this means they’re not paying interest. Not to mention that they’re less likely to spend impulsively: Studies show people are willing to spend at least twice as much when they pay with a credit card as when they pay in cash.

They also use “el leiawei ” (aka layaway). Spurred by the recession’s credit crunch, some major stores, including Sears and Kmart, have recently brought back the good old installment plans.

Still, you need credit cards and bank loans to build a credit score, right? Yes, but use plastic only when you can afford to pay off the balance quickly (and on time). Even for big-ticket buys, follow the immigrants’ law and take out the smallest loans possible with low, fixed-interest rates. And remember, it’s all connected: If you end up overextended on credit card debt, you could have a tough time getting a mortgage or an auto loan when you really need it.

6. Money 6

Launch a Cooperative Business

Mexican immigrant Fernando Gonzalez could never have opened a restaurant on his own. Working as a line cook at an upscale Argentine restaurant in Manhattan had taught him the business inside out, but he earned only about $12 an hour. The capital needed in New York City to open even a tiny restaurant can top $100,000. So Gonzalez teamed up with an army of relatives.

Today, at least eight family members work daily at their collectively owned restaurant and bakery in Corona, Queens. Thanks to their low debt (many of them kicked in savings to open) and lots of hookups from friends, the family recently launched a second restaurant nearby.

Of course, working with family or friends can be stressful. So before you start, draft a detailed contract laying out each person’s role. “The glue that makes the immigrant economy work is confianza,” Vélez-Ibáñez says. Make sure you keep that trust going by being clear from the beginning.