Cross-cultural management of money

Abstract

This study examines the interplay between ethnicity, religious affiliation, and income levels to understand differences in managing money. Asset allocation decisions among 730 Caucasian and ethnic Chinese were examined. Respondents in Australia, Canada, and China revealed their monetary decisions in an online survey. Multivariate analysis of variance was used to examine differences and interaction effects between ethnic, religious, and income groups. The study found that for the higher-income respondents, asset allocation decisions converged despite differences in ethnic and religious background. In the lower-income segment, asset allocation decisions varied along ethnic lines. These differences were further compounded by their religious background. The implications of this study of management are twofold: the high-income group can be treated as one segment, for example, from the international marketing segmentation perspective. On the other hand, respondents in the low-income bracket diverged in their investment strategies on the basis of ethnicity and religion. As such, they ought to be treated separately according to their values.

Keywords

Asset allocation China convergence cross-vergence divergence ethnicity income international market segmentation religious affiliation

Introduction

With the globalization of the world economy, researchers and practitioners have been interested in the similarities and differences across societies and, where there are differences, whether these will converge or diverge, as they have important implications for international market segmentation and hence an organization’s strategic decision to standardize or not standardize its product and service offerings across countries. Levitt (1983), for example, has argued that consumer tastes and preferences converge as a result of globalization; therefore, he called for globally standardized products to capitalize on the economies of scale in production, distribution, marketing, and business. Others (Cui and Liu, 2001; Hassan et al., 2003) have called for international market segmentation—this approach is based on the assumption that despite globalization, cultures will continue to diverge and hence consumer preferences and tastes do vary across countries. As such, globally standardized products and services will not be appropriate.

Ralston et al.’s (1993) concept of cross-vergence has helped fuel the ongoing debate in the literature on international market segmentation. Despite this intriguing notion that countries can converge on some cultural aspects while diverging in other important regards, most cross-cultural studies to date (Hofstede, 2001; House et al., 2004) have assumed homogeneity of values, beliefs, and attitudes among members of a given country; hence the tendency to use country as the unit of analysis.

With increasing human mobility across international boundaries through immigration/emigration, such homogeneity could not always be assumed. Tung (2008a), for example, argued that intranational differences can be as salient as those across countries and called for the need to consider this diversity in cross-cultural studies. A cursory review of the demographic profile in hitherto predominantly white nations, such as the US, Canada, and Australia, highlights the ethnic diversity of the populations of these respective countries. According to the 2002 US Census Bureau, white people (excluding Hispanics) accounted for only 65.6 percent of its population. In 2001, 18.4 percent of the population in Canada was foreign-born. The proportion of foreign-born Canadians is higher in the major metropolitan cities and accounted for one-half and 39.6 percent, respectively, of the populations in Toronto and Vancouver, two of the largest cities in Canada (http://www.toronto.ca/toronto_facts/diversity.htm; Statistics Canada, miscellaneous years). In Australia, according to its 2006 census, 22 percent of its population were foreign-born. Both Canada and Australia are host countries to the largest percentages of overseas Chinese among their populations, after Africa and New Zealand (3.1 percent for Canada and 2.0 percent for Australia) (Tung and Chung, 2010).

Many of the foreign-born immigrants, particularly those from non-European countries, have retained their cultural traditions and values in their adoptive countries. Furthermore, Canada espouses an official policy of multiculturalism whereby ethnic minorities are encouraged to retain and exhibit elements of their cultural heritage. The Australian government is also committed to “promoting diversity,” with the objective of attaining a “multicultural Australia that is united in diversity” (Commonwealth of Australia, 2003: 1).

This diversity in ethnic composition has also contributed, to some extent at least, to a growing plurality in religious beliefs among the Western population. For example, while both Australia and Canada are still predominantly Christian countries, the percentage of Australians and Canadians who identify themselves as Christians has decreased to 63.9 percent and 66 percent, respectively.

In light of the growing intranational diversity in many of the hitherto white countries, it is increasingly important to consider how the mix of ethnicity, religious affiliation, and income levels across nations as well as within a given nation (i.e. intranational diversity) can affect people’s attitudes toward money and asset allocation. Findings from studies that examine the interplay of demographic variables across countries as they affect consumer behavior and decisions can shed important insights into this ongoing debate between whether companies should standardize or not standardize their global product/service offerings. In other words, studies of this nature have important implications for the international market segmentation literature and practice. The 2008–2009 global financial crisis (GFC) has highlighted the differences, and hence consequences, between the liberal spending habits of the industrialized West, particularly the US, and their frugal neighbors in the emerging markets in Asia, particularly China (Baumann and Valentine, 2010; Mufson, 2009).

This study heeds this call for the need to consider intranational diversity by comparing the attitudes toward money and investment decisions among a sample of Caucasians and ethnic Chinese respondents in Australia, Canada, and China. While international market segmentation (Steenkamp and Ter Hofstede, 2002; Wind and Douglas, 1993) and within-country segmentation on traditional criteria such as age and income (Bijmolt et al., 2004; Lee et al., 2004) are not new, to our knowledge, no previous study has applied the interaction of traditional segmentation criteria with members of an ethnic group that reside in three separate countries. In other words, the unit of analysis in this study is ethnicity—more specifically, ethnic Chinese in Australia, Canada, and China—as opposed to geographic market, as used in the traditional international segmentation literature. In addition, this study also incorporates another under-researched segmentation criterion, namely, religion, to examine how the interaction of ethnicity, religion, and income level can affect attitudes toward money and investment decisions with resultant implications for both theory and practice.

The article will first briefly review the literature that suggests the relevance of religious affiliation, ethnicity, and income levels in affecting the attitudes toward money and asset allocation. It then reports the findings of a three-country study to determine whether these attitudes converge, diverge, or cross-verge on the basis of the interplay of three factors: (a) ethnicity—Caucasians in Australia and Canada vis-à-vis ethnic Chinese in Australia and Canada (abbreviated as “overseas Chinese”) vis-à-vis Chinese in China; (b) religious affiliation—Atheism, Buddhism, Christianity, and “Other”; and (c) income level. The emphasis here is on the interplay of these factors because earlier research, such as Granato et al. (1996: 607), has shown that “cultural and economic factors can play complementary roles.” Similarly, Blum and Dudley (2001), in their attempt to ascertain the validity of Max Weber’s (1930) seminal treatise on the relationship between religion and economic growth, contended that other institutional factors also account for the differences in economic growth between Protestant Northern Europe and Catholic Southern Europe.

Literature review

The role of religion

An early study associating ethnicity and religion found that religious-affiliation-wise, the British were most similar to the Scandinavians and most dissimilar from the Italians (Welch, 1977). In a more recent landmark survey of world values, Inglehart and Welzel (2005) asserted that two dimensions, “traditional/secular-rational” and “survival/self-expression,” could account for over 70 percent of cross-national variations in basic human values. In their study, Australia and Canada (along with the US and UK) fell into the secular-rational and self-expression quadrant; while China, the third country included in this study, occupied the secular-rational and survival quadrant. The “survival/self-expression” dimension also reflects the dichotomy between materialism and postmaterialism. Because of the developing economy status of China and its lower per capita gross domestic product (GDP) relative to that of Australia and Canada, according to Ingelhart and Wetzel’s cultural map of the world, most Chinese (in China) tended to emphasize the acquisition and accumulation of material wealth to ensure “economic and physical security”; whereas Australians and Canadians would assign higher priority to postmaterialist values, such as quality of life. This may account, in part at least, for a difference in attitudes toward money and the value assigned to money.

As noted earlier, Australia and Canada are predominantly Christian countries—64 percent of Australians and two-thirds of Canadians claim to be Christians (Australian Bureau of Statistics, 2006; Statistics Canada, 2006), although religion does not appear to play a very significant role in their daily lives. While there are variations, by and large, all branches of Christianity encourage almsgiving and discourage the squandering of one’s fortune. China, on the other hand, is officially an atheistic country, although its citizens are, in principle, free to practise their religious beliefs as long as these activities do not disrupt orderly societal functioning. In China, there is no indigenous religion comparable to Christianity/Judaism in the Western world. While Buddhism is officially practised by only a minority (2.1 percent) of the Chinese population (Central Intelligence Agency, 2009), there is some indication that the actual percentage is between 30 percent and 50 percent (Smith, 2005).

Buddhism is not native to China, however. Buddhism originated in India and was introduced into China in the first century. Like Christianity, Buddhism believes in the afterlife—in the case of Buddhism, this takes the form of reincarnation. The ultimate objective is to attain nirvana (Weber, 2009). According to Gombrich (1988: 63), nirvana means “blowing out” the “triple fire of greed, hatred and delusion.” Inzlicht et al. (2009: 1, 5) have found that “religious convictions” can affect “generic decision making,” as the former may provide “a framework for understanding and acting within one’s environment” (also see Barro and McLleary, 2003; Iannaccone, 1995).

Because religious beliefs can guide economic decisions, Weber (1930) has argued that Protestant Northern Europe was able to experience stronger economic growth than Catholic Southern Europe because Calvinism, a branch of Protestantism with wide followings in the more industrialized countries in Northern Europe, viewed that all aspects of life, including work, were dedicated to God. Weber’s findings were supported by Iannaccone (1998), Blum and Dudley (2001), Barro and McCleary (2003), Guiso et al. (2003), and Noland (2005). In other words, religious convictions have contributed to the nurturance or lack of a commercial spirit.

While Weber’s (1930) study has focused on variations within Christianity, subsequent research on the relationships between economic performance and religion have revealed a more nuanced picture. Granato et al. (1996), for example, investigated cultural attitudes toward achievement and thrift and found that these attitudes had a positive effect on economic growth. Similarly, Guiso et al. (2003) revealed that religious beliefs are associated with economic attitudes and income, and Christianity was correlated with a strong focus on economic growth. In addition, Keister (2003) found that, in general, Jews were wealthier than Protestants and Catholics in the US. Noland (2005: 1215) found that other religious traditions, such as Islam, are “not inimical to growth” but promote it. Benjamin et al. (2010: 3), in an experimental study using priming effects, found that “Catholic identity salience increases risk taking,” whereas Protestants became more risk averse. Renneborg and Spaenjers (2011), on the other hand, found that Catholics were thriftier and risk averse.

In short, even though Weber’s (1930) findings have been challenged in subsequent research, as reported in the preceding paragraph, the relationship between economic attitudes and religion appears undeniable. It is important to note, however, that Christianity does not offer specific guidelines on interest payment or other financial matters, as is the case with the Sharia law in Islam. The emphasis of Christianity is to engage in good deeds and almsgiving and not squander God’s gifts (including money acquired through lawful means) in this life in order to merit heaven. Perhaps the most explicit passage of the Christian Bible on monetary matters comes from the Gospel of Matthew (19:24) where Jesus said, “It is easier for a camel to go through the eye of a needle than for a rich man to enter the kingdom of God.” However, this assertion is not a downright rejection of wealth; rather, it alludes to the greater temptations that may come along with wealth.

Buddhism views that the material and basic physiological needs (including economic gains) can “only be satisfied temporarily … but never fulfilled” (Puntasen, 2009: 11). Thus, monetary profits should not be the goal but how righteous are the “ways and means of profit” (Thero, 2009: 153; also see Weber, 2009). As such, the accumulation of wealth is not the utmost priority in life. Because of the Buddhists’ belief in reincarnation, the goal is to lead a good life in order to secure rebirth as an equal or better being. Thus, almsgiving and sharing one’s fortune with the needy are considered elements of leading a good life. Similar to Christianity and unlike Islam, Buddhism does not offer specific guidelines on financial matters and interest payment (Helbe, 2007).

While China is officially an atheistic nation, in reality, two philosophical traditions have a major influence on the everyday life of most Chinese; these are Confucianism and Taoism. Confucianism emphasizes the importance of moderation and following the golden mean, while Taoism stresses “nonaction” (wu wei), an ambiguous concept that revolves around alignment or harmony with the tao or “the way.” Because Confucianism and Taoism are not religions in the Judeo-Christian tradition, Christians and Buddhists in China do not perceive any contradictions in adhering to the tenets of their religion as well as abiding by the principles of Confucianism and Taoism. However, collectively, the absence of an indigenous religion in China and the official stance of its government may explain why only 3 percent of Chinese have indicated that religion is very important to them (Inglehart et al., 2004).

Given the secular nature of both Australian and Canadian societies, it is not surprising that a growing segment of the population has identified themselves as atheists. According to Paul (2002), 24 percent of Australians have identified themselves as atheists, while Norris and Inglehart (2004) put them slightly higher at 25 percent of Australians. In Canada, the estimates of those who are atheists/agnostics have ranged from 19 percent to 30 percent (Bibby, 2002; Gallup and Lindsay, 2000)—this is in line with the finding in the present study that 31 percent of the respondents have labeled themselves as atheists.

The role of ethnicity

In their attempt to relate cultural dimensions to economic growth, Hofstede and Bond (1988) found that “Confucian dynamism” (subsequently relabeled as long- versus short-term orientation) had the highest explanatory power to account for the differences in rates of economic growth across countries in the 1950s through the 1980s. “Confucian dynamism” refers to countries that are influenced by the teachings of Confucius; an important element of this cultural dimension is thrift or frugality. Frugality and thrift can contribute to high rates of savings. In their study of savings rates of Caucasians and ethnic Chinese in Australia, Canada, and China, Tung and Baumann (2009) found that the attitudes toward money and the savings rate of ethnic Chinese in Australia and Canada resembled that of their compatriots in China rather than their Caucasian counterparts in these two countries. Tung and Baumann (2009) provided comparative statistics of savings rates in Australia, Canada, China, and the US—between 1966 and 2005, the average savings rate in China ranged from 40 percent to 50 percent, an increase from the average of 27 percent in the two preceding decades, while the savings rates in Australia and the US have dipped into negative territory and that for Canada was only 1.2 percent in 2005.

Several factors could have contributed, in part at least, to the penchant for savings among the Chinese: first, the Confucian principle of moderation in all things, spending habits included. Second, because of the Taoist belief that everything occurs in cycles—good fortune follows bad and vice versa—it is important to save for a rainy day (Tung, 1994). Third, the Chinese, in general, possess a long-term orientation (Hofstede, 2001), thus giving rise to the maxim, “save now, play later.” This preference appears to stand in stark contrast to the trend in many Western countries to “play now, pay later.” Fourth, as Kao (1993: 25) noted, the “history of political and social turmoil” in the century and a half preceding China’s current rise in the 21st century has engendered a “life raft” mentality among many Chinese. Some of the values associated with this mentality include “thrift [as that] ensures survival” and “a high, even irrational, level of savings … regardless of immediate need.” Fifth, this life raft mentality tends to be more prevalent among the ethnic Chinese surveyed in this study as they are either immigrants or descendants of immigrants. Sixth, until relatively recently, credit cards and mortgages to finance the purchase of homes and other big-ticket items, such as cars, were not widely available to the vast majority of the population. Hence, people could only spend what they already had accumulated rather than relying on future earnings.

Until the dismantling of widespread discrimination against the Chinese in both Australia and Canada a few short decades ago (Lin, 1975; Munroe, 2009), the primary objective of most Chinese immigrants was to save enough during their sojourn abroad to return eventually to China. While this is no longer the case now, the habit of high savings has persisted among many Chinese immigrants and their descendants. In other words, the diaspora hypothesis (Keister, 2003: 178) that refers to the lingering influence of immigrants on their offspring appears to hold in the case of overseas Chinese. Finally, seventh, the social welfare system in China, Hong Kong, and Taiwan is not as highly developed as that in the West—hence, many Chinese continue to rely on their own savings and the goodwill of their children to take care of them in their old age.

Asset allocation

Following general convention, for the majority of people, assets can be allocated across four major categories (Keister, 2003; Lahey and Kim, 2001; Riley and Chow, 1992; Waggle and Englis, 2000): cash, savings account (savings, in short), investment in stocks and bonds (equity, in short), and investment in property (or real estate). While there are slight variations in measuring asset allocation, in general, three to five categories are used. These typically revolve around the four categories used in this study. This categorization is also in line with the general banking convention applied by major Swiss banks (see the Cantonal Bank of Zurich at: www.zkb.ch) that offer professional asset management services. A person’s decision to allocate his/her assets among these four categories is a function, in part at least, of several factors: (a) tolerance for risk; (b) expected rate of return; (c) cultural influence; and (d) income level. Although this study utilized asset allocation as the dependent variable, the focus is not on “finance” issues but on international marketing management. The analysis is therefore based on the ceteris paribus assumption (i.e. although factors such as financial literacy and financial sophistication would also be associated with financial decision-making, all other things being equal, the study focuses on differences between ethnic, religious, and income groups).

There is a well-developed body of literature on risk in the fields of economics (e.g. Bowman et al., 1999; Kahneman and Tversky, 1979; Rabin, 2000), international business (e.g. Fitzpatrick, 1983; Miller, 1992), science (e.g. Atkinson, 1957; Tversky and Kahneman, 1974, 1992), and finance (e.g. Jacoby and Skoufias, 1997; Jarrow and Turnbull, 1995; Long et al., 1990; Sharpe, 1964). The consensus in the literature is that there is a variety of risk profiles across people, thus resulting in different levels of tolerance for risk (i.e. different risk preference curves). In general, the higher the risk preference curve of an investor, the more likely is the person to invest in stocks/bonds and property over savings and cash. The risk preference curve is also influenced, to some extent, by the expected rate of return of the different categories of investment. In general, the higher the risk associated with a particular category of investment, the higher the rate of return to compensate for the additional risks involved. The rate of return for these various types of investments depends, of course, upon prevailing market conditions. According to Ibbotson Associates, Inc. (cited in Finfacts Ireland: Business and Finance Portal, 2009), between 1926 and 1999, the average annual returns of the US stock market was 11 percent. The return for 1990–1999 was 18 percent. For a roughly comparable time period (i.e. between 1926 and 1996), the annual average rate of return on property investments was 11.1 percent. In comparison, except for a brief period between the mid-1970s and the early 1980s, interest rates in the US have generally been below the 10 percent range. There is, of course, no return on cash holdings per se (James, 2007).

A preceding section has already discussed the cultural influence on attitudes toward savings and will not be repeated here. Furthermore, in the context of post-1949 China (i.e. establishment of Communism in China), until quite recently, its citizens were not allowed to invest in the equity market or real estate. Once these restrictions were lifted and in light of the rapid growth of the China economy with the commensurate rise in the income levels of its people (Su and Xu, 2001), those with excess cash have invested aggressively in the equity and real estate markets. While 85 percent of Chinese families cannot afford to purchase real estate (People’s Daily Online, 2009), this nonetheless explains, to some extent at least, why the performance of the equity market in the emerging economies has greatly exceeded that of their counterparts in the industrialized countries in the past decade. According to Timmons (2009), for example, “while the broad American market lost about a fifth of its value in the past 10 years, emerging markets like Brazil, Russia, China and India powered ahead with gains in the double or even triple digits.” As far as the property market is concerned, while the US housing market remains depressed, in November 2009, according to the National Canadian Real Estate Association, property prices in Canada have surged 19 percent on average. In Shanghai, real estate prices for the same period have soared even more dramatically—for a new apartment in Pudong (the eastern part of Shanghai), prices reached US$4061 per square meter, representing a 57 percent appreciation over the preceding year, while the overall prices for the whole of Shanghai increased 26 percent to US$2434 per square meter (Indiviglio, 2009). In contrast, in 2009, Australian home prices rose 11 percent, and 12 percent specifically for the city of Sydney (Irvine, 2010).

Asset allocation is, of course, a function of an investor’s income level. If a person is living at or slightly above subsistence level, the bulk of his/her assets would be in cash/savings in order to meet the needs of everyday life. For individuals with higher income levels, they have the luxury of entertaining alternative types of investments, such as purchasing stocks/bonds and buying real estate. Given the high price of real estate in Shanghai, Sydney, and Vancouver, the three cities where the subjects of this survey were drawn from, the purchase of real estate may be beyond the means of a growing segment of the population in these locales.

Methodology

A questionnaire was specifically developed to probe people’s attitudes toward money, risk taking, and allocation of assets among four categories of accounts: cash, savings, investment in stocks/bonds, and investment in property. A sample of the questions used in this study appears in Appendix 1. The questionnaire was pretested among a sample of 30 respondents and the final questionnaire was translated into simplified Chinese (the written form most commonly used in the People’s Republic of China) using the back-translation technique. In addition, demographic data such as the respondent’s gender, age, income, ethnicity, and religious background were also collected.

The questionnaire was completed online by the targeted audience in three countries—Sydney in Australia, Vancouver in Canada, and Shanghai in China—in the second half of 2008. To ensure access to the population of respondents that met the objectives of this study, the questionnaire was administered with the assistance of a professional survey organization. While the sample size for this particular analysis was 730, it is not possible to estimate the response rate because the study was administered online utilizing a panel provided by the professional data collection company. The sample profile is presented in Table 1.

Table 1.

Sample profile.

Variable	Categories	Frequencies	Percentages
Sample size	–	730	–
Gender of respondents	Female	363	49.7
Gender of respondents	Male	367	50.3
Age (years)	Younger than 25	117	16.0
	25–34	116	15.9
	35–44	123	16.8
	45–54	146	20.0
	55–64	124	17.0
	Older than 64	104	14.2
Ethnicity	Caucasian born and reside in Australia	159	21.8
	Caucasian born and reside in Canada	165	22.6
	Chinese born and reside in China	356	48.8
	Overseas Chinese	50	6.9
Income	Less than $5000	108	14.8
	$5001–$11,000	110	15.1
	$11,001–$17,000	100	13.7
	$17,001–$40,000	133	18.2
	$40,001–$80,000	157	21.5
	more than $80,001	122	16.7
Religion	Buddhist	139	19.0
	Christian	277	37.9
	Atheist	226	31.0
	Other	88	12.1

The sample was split fairly evenly between male and female respondents and in terms of age and income. While the poverty threshold level varies across countries because of differences in the cost of living, this study followed the guideline used by the 2008 US Census Bureau (i.e. people are considered as falling below the poverty line if the annual income for a single individual younger than 65 years and for a family of four including two children are US$11,201 and US$21,834, respectively (see: http://www.census.gov/hhes/www/poverty/threshld/thresh08.html). Using the 2008 US Census Bureau statistic, respondents who reported their annual income at $40,000 were classified or below were classified as “lower income,” while those earning more than $40,000 as “higher income.” While there would be some variation in income across the three sampling locations, there is evidence that the cost of living in China’s “richest city,” Shanghai, would be comparable (in purchasing power parity terms) to Sydney and Vancouver. At the same time, salaries in Shanghai are China’s highest, with white-collar workers earning 18 times that of the average annual salary in China (Zhao, 2011). Our grouping resulted in 451 (62 percent) lower-income earners, with an income less than or equal to $40,000, and 279 (38 percent) of the respondents earned more than $40,000.

In terms of ethnicity, 324 of the respondents were Caucasians in Australia and Canada and 356 were Chinese in China and 50 were overseas Chinese residing in Australia or Canada. The focus of this study is to investigate specifically the differences between these ethnic groups, although there would be some degree of variation within these groups as well as for any subgroup. However, the delimitation of the study is that the Caucasians in Australia are as homogeneous a group as the Caucasians are in Canada, and the Chinese in China. With regard to religious affiliation, 139 of the respondents declared themselves as Buddhists, 277 as Christians, 226 as Atheists, and 88 as “other.” “Other” refers to respondents who have identified themselves as adherents to a philosophical tradition, such as Confucianism and Taoism, rather than a religion per se. A very small percentage of the respondents also identified themselves as Hindus, Jews, or Muslims. Appendix 2 presents the findings of a one-way analysis of variance with regard to asset allocation across all religion groups. No statistically significant difference was found among respondents from the various religions (p = 0.662 for cash allocation (Panel A), p = 0.192 for savings (Panel B), p = 0.638 for investments (Panel C), and p = 0.636 for property (Panel D)), and a post hoc analysis from a multiple comparison within the religions also revealed no difference (also shown in Appendix 2). There were no Muslims or Hindus for Caucasian and Chinese in our sample, and we only had four respondents that are Jewish for Caucasian in Australia and Canada. Since the focus of our study are only two ethniitie, Caucasian and Chinese, and given the small number of respondents in three religious traditions (Hinduism, Judaism, and Islam), they were dropped in subsequent analyses of the data, thus leaving a final sample of 730 respondents. In other words, only respondents from four religious groups (Atheists, Buddhists, Christians, and “Other”) were used in the subsequent analysis.

Multivariate analysis of asset allocation

Table 2 shows the results of the multivariate analysis to test for differences in asset allocation among respondents who belonged to different ethnic and religious backgrounds. This study examined differences in means, and not “effects” between the variables (in which case, regressions would have been applied), since the purpose of the study was to understand the dynamics and interplay between the ethnic and religious groups identified in the study.

Table 2.

Multivariate analysis of variance of asset allocation.

	Panel A			Panel B
	Overall sample			Higher vs. lower income
Variable	Ethnicity	Religion	Interaction	Ethnicity	Religion	Interaction
Percentage cash	0.076*	0.616	0.401	High: 0.245	High: 0.912	High: 0.970
				Low: 0.037**	Low: 0.093*	Low: 0.119
Percentage savings	0.573	0.702	0.427	High: 0.852	High: 0.623	High: 0.633
				Low: <0.001**	Low: 0.309	Low: 0.262
Percentage investments (shares, bonds)	0.056*	0.622	0.846	High: 0.421 Low: 0.011**	High: 0.971 Low: 0.077*	High: 0.953 Low: 0.710
Percentage property	0.563	0.464	0.364	High: 0.569	High: 0.803	High: 0.322
				Low: 0.077*	Low: 0.927	Low: 0.291

Interaction = ethnicity* × religion.

*Significant at p < 0.10.

**Significant at p < 0.05.

Panel A in Table 2 shows the differences between ethnic and religious groups in the overall sample, including the differences for the interaction terms “ethnicity × religion.” Panel B shows the interaction of ethnicity and religion with income. In Panel A (i.e. the overall sample), there were only two significant findings on the basis of allocation to cash (p = 0.076) and investment (p = 0.056). This means that there was no significant difference in terms of allocation to savings (p = 0.573) or to property (p = 0.563). Furthermore, there was no significant difference across religious groups or in the interaction of “ethnicity × religion.” While the consumer behavior literature has generally found variations across demographic factors, such as gender and age (e.g. Laroche et al., 2000; Ndubisi, 2006; Ruegger and King, 1992; Sadler-Smith, 1996; Tung, 2008b; Walsh and Mitchell, 2005), no significant difference for the interaction between ethnicity, religion, gender, and age was found in this study.

More statistically significant findings were obtained in Panel B (i.e. higher- versus lower-income segments). In Panel B, the first two-way interaction between income and ethnicity showed that for all lower-income respondents, there were significant differences on how they allocated their assets in terms of “cash” (p = 0.037), “savings” (p < 0.001), “investments in shares/bonds” (p = 0.011), and “investments in property” (p = 0.077). In other words, the lower-income-earning Caucasians in Australia and Canada managed their money very differently from the Chinese in China and the overseas Chinese. The second two-way interaction between income and religion in Panel B also revealed significant differences among the lower-income Buddhists, Christians, Atheists, and other non-mainstream religious affiliations, specifically in relation to their “cash” allocation (p = 0.093) and “investments in shares/bonds” (p = 0.077). There was no significant difference in asset allocation for the higher-income respondents across ethnic and religious lines, however.

Charts A and B in Figure 1 illustrate the divergence in asset allocation behavior in the lower-income group on the basis of ethnicity and religious affiliation, respectively; while Charts C and D present the convergence in asset allocation decisions among the higher-income respondents, irrespective of their ethnicity and religious affiliation.

Figure 1.

Asset allocation across ethnic and religious segments.

The overall pattern for lower-income earners across countries is to hold most of their assets in the form of cash, followed by savings accounts, equity, and real estate. This finding suggests that lower-income respondents preferred to keep what they have liquid. This is understandable as they need cash to meet their daily needs as they arise. Furthermore, lower-income earners may not have the means to actually invest in the equity and property markets, particularly the latter, as evidenced by the very low percentages of their assets assigned to property (7–12 percent).

Beyond the aforementioned common pattern, there are differences across ethnic lines, however. Savings was the most preferred option for the lower-income-earning Caucasians and the overseas Chinese, whereas the Chinese in China were more likely to hold more cash than savings. This behavior may stem from the Chinese mistrust of their own banking institutions (Zhou, 2004), a point alluded to earlier in the article. However, among the lower-income segment, the overseas Chinese held nearly 50 percent in savings, whereas the Caucasians assigned only 40–44 percent of their assets in savings accounts. While the Chinese in China preferred cash, the overseas Chinese actually deposited their cash in savings accounts to benefit from interest earnings.¹ Furthermore, the Chinese in the lower-income segment in China held 26 percent of their assets in shares and bonds, a substantially larger proportion compared to other ethnic groups. This difference may be attributed, in part at least, to the sharp appreciation of the equity market in China discussed earlier.

Divergence was also found between the lower-income earners based on their religious affiliations (Figure 1, Chart B) since there were almost significant differences in their cash holdings and investment in shares/bonds (p < 0.10). While the Christians and Atheists held the majority of their assets in savings accounts (43 percent and 37 percent, respectively), Buddhists preferred cash (36 percent cash; 31 percent savings). Respondents in the “Other” religious group yielded an unusual pattern of managing money with the highest percentage (32 percent) in investments in stocks/bonds, although they too belonged to the lower-income-earning bracket that does not tend to hold substantial investments, followed by cash (30 percent), savings accounts (27 percent), and property (11 percent).

While the study found diverging asset allocation for the lower-income segment, the opposite was true for the higher-income respondents: their asset allocation strategies tended to converge. This conclusion was drawn on the basis that no significant difference in asset allocation was found among the higher-income earners on the basis of ethnicity and religious affiliation (Figure 1, Charts C and D). In general, higher-income earners, regardless of their ethnicity and religious backgrounds, held a lower percentage of their assets in cash. Instead, they assigned a larger proportion of their assets in categories that have a greater potential for growth, namely, investment in the equity and property markets.

Conclusions and discussion

The finding of convergence among the higher-income earners and divergence among the lower-income respondents on the basis of ethnicity and religious background supports the cross-vergence hypothesis advanced by Ralston et al. (1997). That is, with globalization and the growing incidence of interactions of peoples from different countries, select behaviors, values, and attitudes can converge, while differences (or divergence) will persist in other respects.

Several factors, in part at least, could have contributed to convergence in asset allocation strategies among higher-income respondents in the three countries: (a) education; (b) travel; (c) media/literature; and (d) marketing promotion. Each of these factors is discussed briefly below.

Education

A cursory review of the business school curriculum around the world reveals that there is a remarkable similarity in the types of courses offered and the reading materials used in these programs. Even though not all higher-income earners have attended business schools, through educational programs, they are generally imbued with the need to diversify their portfolio (Goetzmann and Kumar, 2008; Jorion, 1985; Lessard, 1973) in order to optimize the returns on their earnings/investments. In addition, higher-income earners around the world are exposed to the same principles of wealth management and estate planning, despite differences in inheritance laws in different countries. In addition, given the multicultural composition of most universities, their students are exposed to different cultures through teamwork and in-class discussions. Between 1997 and 2006, over 1 million Chinese from China have studied at foreign universities and business schools (Fang et al., 2008). Because the Chinese who can afford to study abroad are usually financially better off than their counterparts who remained at home, it serves to explain, in part at least, the close parallels in investment strategies for the higher-income earners.

Travel

In general, those with higher incomes can afford to travel abroad. Through international travels, people are able to learn about ideas/events in other countries, including investment strategies by people outside of their home country.

Media/literature

Higher-income respondents are usually more attuned to news/media/literature outside of their home country. Technology and instantaneous access to news in other countries have meant that peoples in Australia, Canada, and China are brought into closer contact with each other than ever before. Furthermore, the more popular literature (books and media events) has been translated into other languages, thus contributing to the reality that higher-income earners from these three countries will most probably read the same literature on investment strategies (e.g. Reilly and Brown, 2008).

Marketing promotion

In light of the rising income levels in China, most manufacturers/providers of luxury goods/services have begun to target consumers in the higher-income brackets around the world in more or less the same fashion. Witness, for example, the convergence in the offerings of designer goods, private banking services, and frequent-flyer programs in all the three cities from which the respondents of this study were drawn.

While this study suggests convergence at the higher-income level, there is strong evidence for divergence at the lower-income level. This finding can be explained by the more limited exposure of those in the lower-income group to global travel, media, and marketing. Because people in the lower-income segment tend to be less educated and less well traveled, they may not be as attuned to global trends as their wealthier counterparts. In addition, they tend to have more limited social interactions with peoples from other cultures. As such, they may adhere more to traditional values and folklore passed on from generation to generation, whereas the better-educated higher-income segment has been trained to be more inquisitive.

The findings of divergence also relate to some recent research pertaining to China with regard to the GFC. According to Chance (2010: 199), the Confucian principles of order and obedience and the Taoist emphasis on unity with nature are fundamentally different from the Western ideals of freedom, both in thinking and in behavior, as well as autonomy of the financial markets. Thus, from Chance’s perspective, the West (as represented by the US, Canada, and Australia) and East (as represented by China) would continue to diverge. Chance’s (2010) assertion of divergence appears to apply to the lower-income segment of the respondents in this study, where differences were found on the basis of ethnicity and religious affiliation. The finding of convergence among the higher-income respondents negates Chance’s (2010) hypothesis and lends credence to Levitt’s (1983) call for globally standardized products/services. The finding of divergence in financial decisions among the lower-income earners supports the call for international market segmentation, on the other hand.

Furthermore, the findings of this study of convergence at one level and divergence at another highlight the need for a more nuanced examination of the complex interplay of traditional (income) as well as non-traditional (ethnicity and religion) segmentation criteria. This call to study the impact that the complex interplay of variables can have on outcomes is in line with the call for polycontextualization proposed by Shapiro et al. (2007). In Hofstede’s (2001) characterization of culture as layers of an onion, he asserted that the outer layers of the onion are more susceptible to change over time as opposed to the ones at the core. This study has found that religious affiliation, ethnicity, and income level could also moderate the convergence and divergence of culture. In other words, convergence/divergence may not only be a function of time and position in Hostede’s onion (i.e. core or outer layers) but also be dependent on one’s financial situation, religious affiliation, and ethnicity. This study has found that asset allocation behavior tends to converge more rapidly among higher-income earners, while such behavior continues to diverge among the lower-income segment on the bases of ethnicity and religious affiliation.

The findings of this study thus suggest the need to investigate other factors that could affect the rate of convergence of attitudes and values across cultures by incorporating more variables that could potentially have an impact and by testing them across a wider sample of countries. As such, it calls for a middle-ground approach between those who propose globally standardized products and services (such as Levitt, 1983) and those (e.g. Cui and Liu, 2001; Hassan et al., 2003) who call for adaptations to cater for cultural differences in international market segmentation. This study argues that the segmentation approach depends on “income” as a triage criteria: for low-income consumers, segmentation needs to be localized, but for high-income earners, global standardization can be applied. The practical implications are discussed next.

Managerial implications

The implications of this study for management are twofold: first, the high-income group can be treated as one segment from the international marketing segmentation perspective. Given that they have converged, cultural and religious elements appear to play a relatively minor role for this segment. As such, they can be targeted with global and standardized marketing communication. For example, the Hongkong and Shanghai Banking Corporation (HSBC) have adopted a uniform strategy in targeting their wealthy clients in all their key markets with the product “HSBC Premier.” The latter is an individually tailored package of high-end banking services. There is no differentiation between geographic (and therefore ethnic and religious) groups for such a product, where the value proposition for this one group of high-income earners is uniquely and globally the same based on the convergent hypothesis. In financial services, a standardized approach to wealth management products and services appears to be practical and profitable.

Second, in this study, respondents in the low-income bracket diverge in their investment strategies on the basis of ethnicity and religion. As such, they ought to be treated separately according to their values. Unlike the higher-income segment, respondents in the low-income segment were more strongly influenced by their cultural and religious backgrounds, thus exhibiting divergence on the basis of culture and religion. This finding suggests that when marketing goods and services to the lower-income segment, they should be adapted to their specific religious beliefs and cultural value systems. Even though people in the lower-income group have less spending power, companies that sell their products/services to this segment would stand to gain financially because of the sheer size of this market. As Prahalad (2010) noted, selling to the “bottom of the pyramid” can be tremendously profitable for multinational companies. For example, the initial public offering of SKS Microfinance that lends to underprivileged women in India generated a US $117 million profit for its founder, Vinod Khosla, who co-founded Sun Microsystems (Bajaj, 2010). Even though Khosla embarked on SKS Microfinance for altruistic reasons, it nonetheless shows the potential market size associated with the bottom of the pyramid.

Footnotes

Note

Appendix 1

Appendix 2

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