Does Banking Experience Improve Asset Building Among Immigrants? a Propensity Score Analysis

Background. Immigrants, as newcomers, need accessible financial services to set their economic foundations and achieve long-term financial security. A key indicator of financial access is having a relationship with a federally insured depository institution such as a bank or credit union, i.e., “being banked”. Although research has indicated a positive association between financial access (i.e., being banked) and financial outcomes, including asset building, most studies are correlational and do not reflect causal relationships. This positive association is due in part to the self-selection bias of being banked. The decision to have a relationship with a bank in the United States does not occur at random and may be influenced by many factors. In this regard, running regressions by controlling covariates without corrections fails to address the statistical problem of endogeneity, which in turn may lead to biased results. This study aimed to test the impact of being banked at an early stage of immigration on immigrants’ asset holding at a later stage.

Method. Data for the study came from the New Immigrant Survey, a nationally representative survey of immigrants who gained lawful permanent residence (LPR) status in 2003 (N = 4,273). The first wave data were collected from 2003 to 2004 and the Wave 2 data were collected 5 years after. The dependent variables were obtained from Wave 2: risky financial asset ownership and retirement account ownership (1 = yes and 0 = no). The independent variable was respondents’ banking status at Wave 1 (1 = yes and 0 = no). Conditioning variables were included to predict self-selection into banked or unbanked status based on previous theory and research. Guided by the Neyman-Rubin counterfactual model, this study used inverse probability of treatment weighting (IPTW) to achieve the balance and estimate the net impact of banking on asset building, controlling for demographic and socioeconomic characteristics.

Results. The descriptive results showed that the proportion of respondents who owned sophisticated financial assets was extremely low: only 20.22% owned investment accounts such as stocks and bonds, and only 16.99% owned retirement accounts. Results from an IPTW regression that controlled for selection bias indicated that asset building outcomes were better among new immigrants who were banked when they gained LPR status than among those who were unbanked. Compared to the unbanked immigrants, banked immigrants’ odds of owning an investment account and a retirement account were 1.92 times (p < .001) and 1.88 times (p < .01) higher, respectively, 5 years after they gained LPR status. Participants’ asset building outcomes also varied by certain demographic characteristics and socioeconomic conditions.

Conclusions and Implications. Being financially capable means having sufficient financial knowledge and accessible opportunities to make and implement informed financial decisions. This study has shown—with self-selection issues addressed—that being banked at an early stage of immigration has positive effects on immigrants’ subsequent asset building. Findings highlight the importance of efforts to promote and expand financial access among immigrants, especially among those who are racial/ethnic minorities and/or of lower socioeconomic status.