Financial decisions and integration among immigrants in Sweden: the role of culture, herding, and gender
This project aims to deepen our understanding of the financial decisions made by immigrants in Sweden. Research by Statistics Sweden shows that immigrants are more likely than native Swedes to be economically disadvantaged in old age, largely due to lower lifetime savings. This results in greater reliance on state support that could perhaps be avoided with better financial decisions during an immigrant’s working life. Our aim is to understand why immigrants end up with lower lifetime savings (holding disposable income and wealth constant) and what can be done to improve the situation. Sweden’s high immigration levels make it increasingly important to investigate immigrants’ savings decisions, to help inform economic and social policy aimed at improving the welfare and integration of immigrants.
Using unique Swedish micro data, we examine the role of cultural factors, such as trust and institutions, in explaining immigrant financial decisions. We are particularly interested in the way the structure, social norms, and economic choices of an immigrant’s local ethnic community affect her financial decisions and how these community effects interact with cultural factors such as trust. The autonomy of women in making decisions, such as those concerning their own finances, varies across ethnic groups. We investigate how exposure to customs among native Swedes (through neighbourhood or workplace networks) moderates inherited cultural norms, particularly among women.
Final report
The purpose of the project is to study immigrants' financial decisions in Sweden, with a special focus on how cultural factors such as trust and how networks affect behavior. Immigrants' low participation in the stock market, which is markedly lower than that of the Swedish-born, is an objective failure as participation in the stock market has a much higher return. It results in a lifelong loss of capital and leads to less resources during the years in retirement.
Immigrants to Sweden, one of the most trusting countries in the world, have a trust gap that is an obstacle to participation in the financial markets as trust has proven to be an important factor for participation in the stock market. Immigrants living in areas with many foreign-born have a lower likelihood of assimilating into the majority culture because they are less likely to interact with the majority population. This lower interaction with the native-born population increases the likelihood that immigrants maintain their cultural norms, including trust in other people and institutions. Both a lower level of trust and a lack of interactions with Swedish-born people can be detrimental for immigrants' financial decisions.
The project has employed unique Swedish register data to study these issues. Data includes both detailed financial information and demographic information such as immigration time and country of birth, which are crucial to the project, although it took much longer than planned to gain access to the data.
Our empirical approach has been to study the assimilation of immigrants' financial behaviors. This means that we study the time until the behavior of the immigrant reaches a certain threshold. One such threshold is ownership of listed shares on the Stockholm Stock Exchange, another if the risk level in financial savings matches the level among Swedish-born with the same demographic characteristics. It is a new approach in the literature, which further increases our contribution, although the method is more computationally time-consuming. The basic model is based on proportional hazards.
In our analysis, we first establish that it takes longer for immigrants to become shareholders than Swedish-born individuals, in line with previous studies. There is great variation between different countries of origin. We also find that the lower the general trust in the country of birth, the longer it takes to assimilate in financial behavior. We study both stock ownership and financial risk-taking, and the results are similar for the different outcomes.
The first of our most important results is that the proportion of Swedish-born in the residential area plays a very large role in the assimilation of immigrants' financial behavior. We study residential areas as geographical squares with a side of 250 meters. Even if immigrants come from the quarter of the world with the lowest trust, which is assimilated at a slower rate, that effect can more than be offset by living in an area with many Swedish-born. Immigrants from countries that have high trust but who live in areas with fewer Swedish-born people own shares to a similar extent as immigrants from countries with low trust who live in areas with many Swedish-born. This applies after 5 and 15 years in Sweden. But for those who have been in Sweden for 25 years, a marked difference is visible. Those who come from low-trust countries but live among more Swedish-born have a markedly larger proportion who own shares compared to those who came from high-trust countries but live among fewer Swedish-born. The environment they live in becomes a more important factor over time compared to the cultural background.
The second of our most important results is that there is a markedly stronger effect of living among more Swedish-born for those immigrants who come from countries with low trust. All immigrant groups are assimilated faster in their financial behavior if they live among more Swedish-born, but the effect is relatively greater for those from low-trust countries. It is thus extra important for the assimilation of immigrants from low-trust countries to live among more Swedish-born.
The third of our most important findings is that there are large differences between the sexes. Men buy listed shares to a much greater extent compared to women with an immigrant background. But when it comes to assimilation of the risk level, the difference is much smaller, although it still takes longer for immigrant women to reach the risk level of Swedish-born. Interestingly, there is also a big difference in how assimilation differs between different residential areas. Women who live in areas with more Swedish-born people assimilate faster than men who live in similar areas. This indicates that the interactions with Swedish-born people are more important for immigrant women than men. This may be due to the fact that women rely more on information about financial behavior from people around them, and if they are to a greater extent Swedish-born, it helps more with the assimilation of their savings behavior. Men may have easier access to financial information through other channels. We see a similar pattern in terms of education. For immigrants without a university degree, it is extra important to live among many Swedish-born people to assimilate. Highly educated immigrants arguably have an advantage in gaining information about savings and financial behavior in other ways, such as reading newspapers or information from financial institutions.
The project has found that both the cultural background and the local residential area are important factors behind the assimilation of immigrants' financial behaviors. We also find that these factors interact as the difference in assimilation for those with a higher proportion of Swedish-born in the residential area is relatively larger for immigrants from low-trust countries. The results indicate that the assimilation of financial behavior would be significantly faster if the quarter of immigrants with the lowest trust living in the areas with the least Swedish-born, the lowest twentieth, were to live in areas where the proportion of Swedish-born is at the median level.
The work on the project has resulted in a number of new research questions that we have studied and will continue to study even after this part of the project has ended. In the analysis above, we have assumed that all Swedish-born people have a similar impact on immigrants' behavior. One question we continue to study is how attitudes of the Swedish-born can affect immigrants' assimilation. We study attitudes among Swedish-born people at the neighborhood level and investigate how differences in attitudes together with the proportion of Swedish-born in the neighborhood affect the assimilation of immigrants.
We have also carried out work related to how immigrants' attitudes are shaped. Attitudes such as tolerance are probably important for the assimilation of immigrants, as tolerance facilitates interaction with individuals who have different characteristics or attitudes. We find that immigrants' tolerance is shaped by factors in the country of birth, especially if the country of provenance is not strongly religious and also if parents in the country of provenance value that children learn tolerance and respect. The impact of formal and informal institutions has also been examined with respect to innovation. Here are the main conclusions that impartial institutions and a high level of education are the most important institutional factors behind innovations and entrepreneurship among employees, an area in which Sweden is prominent.
The dissemination of the results is partly ahead of us as we continue to work with the research questions in the project. The project time has largely overlapped with the Corona pandemic, which has limited both travel and public gatherings both in the research community and society at large. We look forward to disseminating the results of the project both in the research community and Swedish society in the future.
Immigrants to Sweden, one of the most trusting countries in the world, have a trust gap that is an obstacle to participation in the financial markets as trust has proven to be an important factor for participation in the stock market. Immigrants living in areas with many foreign-born have a lower likelihood of assimilating into the majority culture because they are less likely to interact with the majority population. This lower interaction with the native-born population increases the likelihood that immigrants maintain their cultural norms, including trust in other people and institutions. Both a lower level of trust and a lack of interactions with Swedish-born people can be detrimental for immigrants' financial decisions.
The project has employed unique Swedish register data to study these issues. Data includes both detailed financial information and demographic information such as immigration time and country of birth, which are crucial to the project, although it took much longer than planned to gain access to the data.
Our empirical approach has been to study the assimilation of immigrants' financial behaviors. This means that we study the time until the behavior of the immigrant reaches a certain threshold. One such threshold is ownership of listed shares on the Stockholm Stock Exchange, another if the risk level in financial savings matches the level among Swedish-born with the same demographic characteristics. It is a new approach in the literature, which further increases our contribution, although the method is more computationally time-consuming. The basic model is based on proportional hazards.
In our analysis, we first establish that it takes longer for immigrants to become shareholders than Swedish-born individuals, in line with previous studies. There is great variation between different countries of origin. We also find that the lower the general trust in the country of birth, the longer it takes to assimilate in financial behavior. We study both stock ownership and financial risk-taking, and the results are similar for the different outcomes.
The first of our most important results is that the proportion of Swedish-born in the residential area plays a very large role in the assimilation of immigrants' financial behavior. We study residential areas as geographical squares with a side of 250 meters. Even if immigrants come from the quarter of the world with the lowest trust, which is assimilated at a slower rate, that effect can more than be offset by living in an area with many Swedish-born. Immigrants from countries that have high trust but who live in areas with fewer Swedish-born people own shares to a similar extent as immigrants from countries with low trust who live in areas with many Swedish-born. This applies after 5 and 15 years in Sweden. But for those who have been in Sweden for 25 years, a marked difference is visible. Those who come from low-trust countries but live among more Swedish-born have a markedly larger proportion who own shares compared to those who came from high-trust countries but live among fewer Swedish-born. The environment they live in becomes a more important factor over time compared to the cultural background.
The second of our most important results is that there is a markedly stronger effect of living among more Swedish-born for those immigrants who come from countries with low trust. All immigrant groups are assimilated faster in their financial behavior if they live among more Swedish-born, but the effect is relatively greater for those from low-trust countries. It is thus extra important for the assimilation of immigrants from low-trust countries to live among more Swedish-born.
The third of our most important findings is that there are large differences between the sexes. Men buy listed shares to a much greater extent compared to women with an immigrant background. But when it comes to assimilation of the risk level, the difference is much smaller, although it still takes longer for immigrant women to reach the risk level of Swedish-born. Interestingly, there is also a big difference in how assimilation differs between different residential areas. Women who live in areas with more Swedish-born people assimilate faster than men who live in similar areas. This indicates that the interactions with Swedish-born people are more important for immigrant women than men. This may be due to the fact that women rely more on information about financial behavior from people around them, and if they are to a greater extent Swedish-born, it helps more with the assimilation of their savings behavior. Men may have easier access to financial information through other channels. We see a similar pattern in terms of education. For immigrants without a university degree, it is extra important to live among many Swedish-born people to assimilate. Highly educated immigrants arguably have an advantage in gaining information about savings and financial behavior in other ways, such as reading newspapers or information from financial institutions.
The project has found that both the cultural background and the local residential area are important factors behind the assimilation of immigrants' financial behaviors. We also find that these factors interact as the difference in assimilation for those with a higher proportion of Swedish-born in the residential area is relatively larger for immigrants from low-trust countries. The results indicate that the assimilation of financial behavior would be significantly faster if the quarter of immigrants with the lowest trust living in the areas with the least Swedish-born, the lowest twentieth, were to live in areas where the proportion of Swedish-born is at the median level.
The work on the project has resulted in a number of new research questions that we have studied and will continue to study even after this part of the project has ended. In the analysis above, we have assumed that all Swedish-born people have a similar impact on immigrants' behavior. One question we continue to study is how attitudes of the Swedish-born can affect immigrants' assimilation. We study attitudes among Swedish-born people at the neighborhood level and investigate how differences in attitudes together with the proportion of Swedish-born in the neighborhood affect the assimilation of immigrants.
We have also carried out work related to how immigrants' attitudes are shaped. Attitudes such as tolerance are probably important for the assimilation of immigrants, as tolerance facilitates interaction with individuals who have different characteristics or attitudes. We find that immigrants' tolerance is shaped by factors in the country of birth, especially if the country of provenance is not strongly religious and also if parents in the country of provenance value that children learn tolerance and respect. The impact of formal and informal institutions has also been examined with respect to innovation. Here are the main conclusions that impartial institutions and a high level of education are the most important institutional factors behind innovations and entrepreneurship among employees, an area in which Sweden is prominent.
The dissemination of the results is partly ahead of us as we continue to work with the research questions in the project. The project time has largely overlapped with the Corona pandemic, which has limited both travel and public gatherings both in the research community and society at large. We look forward to disseminating the results of the project both in the research community and Swedish society in the future.