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Chinese-Americans, the Nation’s Lowest-Risk Borrowers, Overlooked

Mortgage banks may soon focus more on a minority borrower group they may have overlooked. A recent study found Chinese-Americans hold almost no consumer debt outside of typical mortgage loans, indicating these borrowers are a mortgage lender/servicer’s dream customer.

Published in the Journal of Family and Economic Issues, it shows that while 72% of Chinese-American households surveyed in 10 Midwestern cities hold a mortgage, only 5% of them have outstanding auto loans and only 3% have any other type of consumer debt.

Researchers say cultural differences are the primary reasons why Chinese-Americans are adverse to debt unless they are purchasing a home, combined with a lack of familiarity with the American financial system that breeds additional caution and complements lenders’ stringent credit attitude.

And it is not just a perfect match in attitudes. Demographic data show the community continues to grow.The Asian alone population grew faster than any other major race group between 2000 and 2010, increasing by 43% to 14.7 million in 2010, up from 10.2 million in 2000--which, at 4.4 million, also marks the second-largest numeric growth. Despite a dcline in the growth rate--from 1990 to 2000 was at 63.24%--by 2010 the Asian alone population reached 5% of the total population, up from about 4% in 2000 and Chinese Americans represent its largest ethnic group.

Given the 2,314,537 who claimed single ethnicity and a total of 2,734,841 when adding those with mixed ethnic background, according to 2000 U.S. Census, the Chinese-American community has been by far the largest Asian-American group in the country for decades. Adding to that the fact that the overall growth of the Asian-American community by default means the growth of its largest ethnic group, it represents a significant, very low-risk, yet untapped customer group.

Results reflect “some unique aspects of the Chinese culture,” said Rui Yao, an assistant professor of personal financial planning in the College of Human Environmental Sciences at the University of Missouri, who conducted the study.

The researcher, who also is a community insider, argues that credit and debt “are relatively new concepts to the Chinese” who preserve strong ties to a country “where most purchases are made with cash.”

The annual income of the 149 participants to the study ranged from $4,000 to $1.4 million averaging at $106,000, while their average mortgage debt was $132,864.

Data show debt tends to be unacceptable especially for low-income households that are even more aware that debt needs to be repaid with interest in the future, she said. While those who have the means are willing to incur a higher debt for better housing. So despite a low overall rate of debt, higher-income Chinese-Americans “were more likely” to have some type of consumer debt that may reflect “relatively higher” mortgage balances.

In her view the historic Chinese aversion to debt “could be both a strength and a weakness in the U.S. economy.”

According to Yao, conservative approach to debt has contributed to limited experience in the American financial markets that could be unleashed through targeted financial education. Appropriate use of debt can help households improve their quality of life as well as stimulate economic growth, she said, which is why Chinese-Americans could benefit from financial education “designed to help them plan for their financial future in a manner consistent with Chinese cultural values.”

They can take advantage of debt in a responsible fashion and “build a strong financial base that is not threatened” by excessive consumer debt or uncertain financial times.