When I was a corporate trainer in China, a frequent topic that came up during sessions with my students was the differences between American and Chinese financial systems.
One of my students, who had completed her Ph.D. in the U.S., wondered why she had to go into debt in order to improve her credit. In my past role as an international banker, I heard the same complaint from my foreign clients as they tried to establish their financial lives in the U.S. They didn't understand the relationship between debt and credit.
So for people arriving or new in the country, don't panic just yet. We've got a few tips that may ease your confusion about the U.S. financial system.
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In many countries, cash is still king, and credit cards often function more like a pre-paid card than a revolving line of credit. In the U.S., credit reigns supreme, and credit options are abundant.
It takes a while before some immigrants realize that credit impacts every aspect of their life – employability, accommodation, insurance, mortgage, and car loans… In short, everything you need to live.
Although many countries have their own domestic credit bureaus and credit scoring systems, due to privacy laws and restrictions on sharing data, personal credit information does not travel between countries.
This means that even if you have a perfect credit history in your home country, once you arrive in the U.S., you will start from scratch.
Usually, the easiest way to do this is by getting a credit card. Unfortunately, most immigrants also make the mistake of applying for every credit offer that comes their way, further damaging their already fragile U.S. credit history.
The best option is to apply for a Secured Credit Card where you deposit a certain amount of money, which the bank puts into a savings account. That then becomes your credit line. Normally, with consistent payments over time, you become eligible to switch to a regular, unsecured credit card.
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U.S. Banking Practices
Many foreigners are either amused or baffled when they see that people use their checking account as their primary account.
Most of my customers have never had a checking account, didn’t know how one functioned, and didn’t even know how to write a check!
My clients would insist on having a savings account, and my staff would then have to educate them on Regulation D, which limits withdrawals and transfers in savings accounts to six per month. Violation will bring penalties or even closure of the account, depending on the policy followed by individual banks.
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U.S. Health Care
Foreign nationals – especially from countries with state-funded healthcare – may find the American system expensive. My friend Melanie from Germany once remarked, “I have never had to pay out of my pocket for healthcare.” Most foreign nationals coming to the U.S. to work or study should have health insurance through their employer or school.
If not, purchasing health insurance before arriving in the U.S. is essential.
Prepare Yourself For the Two Ts of Life in America: Taxes and Tipping
Depending on your U.S. immigration status and the state you reside in, you may be required to report worldwide income and pay federal and state taxes. The tax rate on goods and services can also vary by state. And unlike most European countries, it is not included in the list price.
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Paying extra for service is also an unusual concept in many countries, and often immigrants don’t understand the idea of customary versus voluntary tipping. My students in China routinely asked me what happened if they didn’t leave a tip for the housekeeping staff in a hotel. Many thought they would not have their room cleaned daily if they did not leave a tip every day!
At the same time, most foreign nationals routinely leave above-average tips. Most restaurants in the U.S. now include a suggested tipping amount with your bill, and guidelines for tipping etiquette are widely available online.
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