Navigating the Financial Impact of Immigrating to the United States: Tips and Strategies

By Jackie Lam

PUBLISHED June 11
|
5 MINUTE READ

If you're one of the 13.6% of foreign-born residents (over 45 million) living in the United States, you likely know the reality of starting a fresh life in a new country.¹ Navigating a foreign culture, mastering a new language, finding employment and carving out a community are just a few challenges many newcomers face. While exciting, settling into an entirely new terrain can feel like a shock.

Regardless of your reasons for immigrating to the U.S.—whether it be due to war or civil conflict, better economic and educational opportunities or proximity to family—you'll likely encounter some financial hurdles.

But learning the workings of a new banking and credit system can help you lay a foundation for you and your family to thrive. Let's look at common challenges and steps to take to get on solid financial footing after moving to the United States.

Common Money Hurdles After Immigrating to the U.S.

No matter where you're from or what brought you to the U.S., settling down in a new place can be tough financially. Here are some common financial hurdles newcomers often face after moving to the United States.

Not having a bank account

In 2021, an estimated 4.5% of U.S. households (5.9 million) didn't have a checking or savings account.²If you're new to the country, you might find it tough to open a bank account. Maybe you're still learning to speak English, or maybe you don't have the identification needed to open an account. Or it could be that you feel a bit guarded with banks because you're not familiar with how they work.

Not understanding the different savings and investing vehicles

Even if you're not a newcomer, you might find the different savings and investing options confusing. In fact, a recent report shows that many investors are unaware of or confused about the various fees they may pay for investing.³

Coming from countries with different financial systems, immigrants to the United States may struggle to understand the savings and investment options available, such as 401(k) plans, individual retirement accounts (IRAs), high yield savings accounts, money market accounts and certificates of deposit (CDs). As such, newcomers can miss out on opportunities to grow their wealth or save for retirement due to unfamiliarity with these savings vehicles. This can lead to money mistakes, like not using employer retirement plans or failing to build a credit history, which is essential for buying a home or getting loans. That's why getting reputable financial education and advice soon after arriving in the U.S is so important.

Needing to build credit from scratch

If you're new to the country, you're likely "credit invisible"—meaning you have little to no credit history in the U.S. Since you can't take the credit score from your previous country with you, your credit profile might be so thin or limited that you don't have a credit score. Plus, as you're learning the ins and outs of a new financial and credit system, you might not know where to start.

As a newcomer, it's a tricky situation: If you can't build credit, you can't get credit. Without a credit history, you often get turned down for credit cards, loans and even housing. This can make it hard to prove you can handle credit responsibly and start building a good credit record. So, you may get stuck in a cycle where the lack of credit holds you back from getting the credit you need to build a better financial future.

Relying on payday loans

If you're an immigrant, you might be more inclined to use a payday loan. That's partly because it can be so tough for newcomers to secure lower-interest-rate forms of credit.⁴

While payday lenders don't typically require a credit check or review of your income to make sure you can pay off the loan, the entire amount of the loan is due by your next paycheck. Plus, interest rates are often jaw-droppingly high—we're talking 390% or more.⁵ If you can't pay off the loan before the due date, a renewal or rollover fee will be tacked on.

Being reluctant to share personal information

Yes, this might initially sound a bit strange. Why would you want to share information with someone you just met—like a bank rep —or disclose sensitive information over the internet? Or maybe you're trying to get a small business loan to start a food business and the bank wants to learn a little bit more about your entrepreneurial journey. It could be that you lived in a rural area in your previous country and are more accustomed to first developing a rapport with someone before you ask for a loan.

So, in the U.S., stepping inside a bank or applying online and sharing personal details (such as your birthday and income) to get approved for that first credit card or opening a checking account might feel bizarre.

Steps To Build Financial Stability

Now that we've talked about common obstacles when you're new-to-country, let's walk through how to establish a sound financial foundation.

1. Open checking and savings accounts

First, stash your cash in a safe place. While you might be more comfortable tucking away your funds elsewhere, money in a checking and savings account is FDIC-insured. So in the rare case a bank goes bust, you are covered for up to $250,000 per account holder, per ownership category, per FDIC-insured bank.

Savings accounts are also great for stashing cash for an emergency fund or a "love fund" or "family fund" to send money to relatives back in your home country, or for a down payment for a home or car.

Another major benefit? You can earn interest in a savings account. A high yield savings account typically has competitive rates that may beat what a standard savings account offers. If you're a non-U.S. citizen and don't have a Social Security card, you can open a Synchrony Bank account online with a tax identification number, as long as you reside in the U.S.

2. Start an emergency fund

Growing an emergency fund is essential to cover curveballs life tosses your way. It can mean the difference between having a financial buffer and resorting to a payday loan—or needing to ask a friend or family member for a small loan.

With an emergency fund, you can be self-sufficient and bolster your financial armor. Experts often recommend setting aside at least three to six months of basic living expenses.

That might feel like a tall order, but the key is to start small. Aim to regularly save $50, then $100. To make it easier, automate your savings. Then, when you can comfortably do so, ramp up how much to tuck away regularly each month in your savings account.

3. Establish credit history

Getting approved for credit products as a newcomer can be tough. Here are a few tips to access credit that can help build your credit score:

• If you had a bank account in your previous country, check if they offer a credit card that's available in the U.S. If they do, you may be able to apply for a credit card at a U.S. branch.⁶
• You can also apply for a secured credit card, which requires a cash deposit that acts as collateral. By using the credit card responsibly (that is, making timely payments and keeping balances low), you can gradually establish a positive credit history.⁷
• Becoming an authorized user on a family member's or friend's credit card can help, as long as the primary account holder has good credit habits.⁶
• Explore credit-builder loans or programs offered by financial institutions or community organizations. These loans are designed to help newcomers build credit by making small, manageable payments over time.⁷
• Paying rent and utility bills on time can also contribute to building a positive credit history through alternative credit reporting methods.⁶

4. Choose smart savings vehicles

Picking smart ways to save money can help you find your financial footing and build wealth. That's partly thanks to the magic of compound interest, which means you earn interest not only on your original savings, but also on the interest that accumulates over time, helping your money grow faster.

Savings accounts like high yield savings accounts, money market accounts and CDs generally offer competitive interest rates. Also, putting money into retirement accounts like 401(k)s or IRAs can set you up for a better financial future. By picking the best saving options for your needs, you can build a strong financial base and reach your money goals faster. Investing and savings accounts can also be used to save for a child's college education.

It's a good idea to talk to a financial professional who can walk you through the process and answer any questions you may have.

5. Do your homework

You might be inclined to get recommendations and money tips from someone in your social group. They have your best interests at heart, so why wouldn't you trust them?

While money tips from family and friends can be helpful, be sure to do your homework. For starters, your situation, needs and preferences might differ from theirs. Also, their opinions and recommendations might need validation, so check with a financial professional before you dive in. Plus, you might come across a financing option or new way to manage your money that's a better fit.

Besides doing your research, it's a good idea to consult with a reputable professional who can offer you guidance and recommendations. An accountant can give you tax advice, a financial advisor or planner can offer money management and financial recommendations, and a lawyer can help you make sense of legal matters and learn your rights.

Explore Exciting Opportunities While Meeting Challenges Head-On

Settling in the U.S. as a newcomer and navigating a new financial system can be exciting, but also confusing. Taking simple steps to build a solid financial foundation can help you be self-sufficient, gain access to credit and grow your wealth to help you and your family.

It won't always be easy, but it will be worth the effort. You and future generations will reap the rewards of what you choose to do today.

Jackie Lam is an award-winning, L.A.-based money writer whose work has appeared in Salon.com, Refinery29, Time, Forbes, CNET, Business Insider and BuzzFeed, among others.

Sources/references

1. Immigrants in the United States. American Immigration Council. Accessed April 10, 2024.

2. 2021 FDIC National Survey of Unbanked and Underbanked Households. FDIC. July 24, 2023.

3. Lin, Judy et al. Investors in the United States: The Changing Landscape. FINRA Investor Education Foundation. December 2022.

4. Cyprien, Jean. The Racial Wealth Gap and P ayday Loans. University of North Georgia. Accessed May 10, 2024.

5. Payday Lending. Federal Trade Commission. Accessed May 10, 2024.

6. Starbuck Gerson, Emily. 5 Ways Immigrants Can Build Credit in the United States. Experian. October 15, 2021.

7. McGurran, Brianna. What Is a Credit-Builder Loan? Experian. October 7, 2023.

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