Welcome to the Land of Plenty
Coming to America gave the Cariagas a chance to earn more money than they ever dreamed of growing up amid poverty in the Philippines. Now they're learning just how many ways America offers to fritter it away.
(MONEY Magazine) – AS A CHILD, RETZER CARIAGA lived in a one-bedroom home on the impoverished Philippine island of Mindanao. The house, made of bamboo and coconut lumber, had no electricity or plumbing. To supply the family's drinking water, he and his sister would walk half a mile every afternoon to a riverside well and fill up plastic jugs.
Today, Retzer, 30, and his wife Lewelyn, 28, own a three-bedroom red-brick townhouse in Baltimore, a 10-minute walk from the hospital where they both work as nurses. A computer with a high-speed Internet connection sits near a flat-screen TV, the kitchen gleams with General Electric appliances, and the living room sports a vast leather couch and a colorful throw rug. As a guest settles in at the glass-topped table in the dining area, Retzer and Lyn (as she is known) offer him a drink of water--not from a well but from a sparkling Brita pitcher with a built-in filter and a liquid crystal display.
As America agonizes through one of its periodic debates about immigration, the Cariagas' story shows why people from other lands remain desperate to come here. Before they arrived in the U.S. in 2003 as legal permanent residents, the couple earned $4,000 a year; last year they took in the once unimaginable sum of $148,227 (which is more than 94% of U.S. households make). But the Cariagas' fortune is also a sign of how America, in turn, craves immigrants like them. Nursing schools here are already unable to fill the demand for registered nurses. And as the U.S. population ages over the next decade, the gap between the need and the supply of U.S.-trained nurses is expected to widen even further. Like oil or Toyotas, foreign-trained health-care workers have become a prized import, and the Philippines--a former U.S. colony where English is an official language--has emerged as America's leading supplier.
But if the globalization of labor has worked out well for the Cariagas, it has also forced them to confront financial challenges they could never have anticipated. Before they came here, neither had seen a credit card, much less used one. The retirement plan they knew best wasn't a 401(k) but parents living with adult children. They knew nothing of stocks, credit scores or mortgages. All they knew about America was that once they came, their money cares would end.
Not quite. If native-born Americans find it tough to make the right money decisions these days, it's not surprising that the Cariagas find it next to impossible. In the three years since they arrived, they've overdosed on consumer credit, fallen prey to high-pressure sales tactics, and misfired on their retirement savings. Lots of people born here make the same mistakes, of course. But to see the American culture of money through the eyes of two educated yet unprepared newcomers is to gain a whole new appreciation for how well things can go here--and how hard you must work to keep them that way.
• Growing Up Poor
What Lyn and (especially) Retzer do understand better than most Americans is what poverty is and how hard it is to overcome it. His father drove a taxi--actually, a sidecar-equipped motorcycle onto which he could squeeze as many as seven passengers at a time. In Retzer's teen years, his mother left Mindanao to clean homes in Hong Kong; she could afford to visit her family only once every two years over a 12-year stretch. "It was a real sacrifice," says Retzer. "We are missing our mom, and it was not really good for my father." Still, his parents managed to scrape together the $200 a year in tuition, plus living expenses, needed to send Retzer to a Seventh-day Adventist boarding school 20 miles from home.
At school Retzer continued to barely scrape by. He could not afford textbooks, so he borrowed them from classmates. When he discovered he needed black shoes for his school uniform, he took the only shoes he owned, a pair of white sneakers, and dyed them with ink from a broken pen. Another time, Retzer found himself out of food and down to two pesos--the equivalent of less than a dime. So he bought some sugar and pineapple, and lived off candied pineapple and rice for two weeks.
The money his mother sent from Hong Kong helped put Retzer through a Seventh-day Adventist college on Mindanao. There he met Lyn, a fellow nursing student from a middle-class family. Touchy about his hardscrabble childhood and a bit of a loner, Retzer was comforted by her patience and agreeability. "She gets along with everybody," he says. She, in turn, admired his fierce drive and religious faith.
After graduation, Retzer pondered his meager prospects at home and, like many Filipino nurses, decided to look abroad for work. After filing online applications for jobs around the globe, he landed an offer from Johns Hopkins Hospital. In February 2003, as he awaited his final immigration papers, he and Lyn felt confident enough in their future to marry. His dad sold his taxi to help pay for the wedding.
• Land of Plenty
While the Cariagas had seen wealth in the Philippines, when they arrived in America they were struck by the casual affluence all around them. One example: Retzer, who went through two years of high school with one uniform, washing it by hand each night, recalls being amazed by mall-goers carrying shopping bags filled with clothes. "No one buys just one piece," he says. Taking too readily to local ways, perhaps, Retzer immediately gained weight. He arrived here at 145 pounds; over the next 2½ years he hit 175. (Now he's back below 155.) "Back home, where food is so scarce, the tendency is to eat as much as you can when food is around," he explains.
American financial customs, however, did not come quite so naturally. Flustered by the paperwork on his first day at Johns Hopkins, Retzer thought he had signed up for the hospital's 403(b), the nonprofit version of a 401(k), but learned at year's end that his enrollment had not gone through. As for how to invest the account, Retzer--who even today is still learning to distinguish stocks from bonds--had no clue. Of the three asset-allocation models the plan offered, he picked the one labeled "Moderate" because he thought it was safest. (Actually, it was neither the safest nor the best fit.) "It was too overwhelming," he says. "I just could not understand."
Then came the Cariagas' attempt to build a credit history. Acting on misinformation from other new immigrants, they acquired--and borrowed on--as many credit cards as they could get their hands on. Starting with Visa and American Express cards, they proceeded to get plastic from the Gap, Lowe's, Home Depot and Sears (twice), and to charge furniture (no interest for a year) at two different furniture stores. "Getting all those credit cards, we are thinking we are going to build our credit history," says Retzer. "But I think it did more bad than good." Indeed, when the Cariagas tried to refinance their car loan this year, their low credit score (and, hence, high interest rate) made it pointless.
Still, the borrowing power that lenders showered on the Cariagas helped them to enjoy the part of American financial life they have embraced most enthusiastically: spending. In 2004 they spent $2,700 on a pair of bicycles. Later that year they bought a brand-new, $34,000 Honda Pilot SUV. But their biggest weakness, measured by the regularity of their purchases, is camping equipment. A co-founder of his college's mountaineering club, Retzer once made himself a sleeping bag out of disposable tablecloths. In America, he has bought four different sleeping bags, at an average cost of $170. "I told my wife, you got to stop me," laughs Retzer. "But she would not."
The low point in the couple's initiation into American financial life came when they fell for the classic time-share come-on: two three-day vacations in exchange for listening to a 90-minute sales presentation. When they drove to their destination in the Shenandoah Valley, they weren't even sure what the resort they were visiting hoped to sell them. But by the end of the day, they had bought a $10,000 time-share--at an interest rate of 17%--even though they had never even heard of a time-share before that day. The salesman convinced them it would be a nice gift for their kids someday--never mind that they don't have any yet--and enticed them with extras he said they would lose if they didn't sign up immediately. "I guess he was a very good salesman," says Lyn.
Despite these misadventures, the Cariagas are hardly financial basket cases. They set aside more than 20% of take-home pay for tithes to their church and Filipino charities. So far they've sent home $10,000, to help build a new concrete house for Retzer's parents.
Along with the pleasure they take in their adopted country's abundance come spasms of guilt. Lyn says they hate it when they allow food to spoil. "We could have bought just enough for us," she says sheepishly. Retzer justifies his taste for new camping gear by saying he's paying for it out of overtime, but he still has mixed feelings. "Every time I buy a material thing," he says, "there's always a feeling that I could have sent the money back home and fed more people."
• The Advice
To help the Cariagas navigate their new homeland's financial landscape, financial adviser Brian Wruk of Gilbert, Ariz.--who specializes in immigrant clients--offers this road map.
• EASE UP ON CREDIT While the Cariagas have a lot in their favor--starting with their healthy savings rate--they are carrying too much debt, says Wruk. "You've become Americanized," he jokes.
Their first priority, he says, is to pay off the time-share loan. It makes no sense for the Cariagas to get a 1% return on the $12,000 they have in bank accounts, he says, when they're paying double-digit interest on the time-share. They should also close the $824 balance on their furniture bill before the interest-deferral period ends this summer. As is typical with such offers, if the Cariagas miss the deadline, they'll owe 24% finance charges dating back to the purchase.
• TAKE STOCK The Cariagas need to invest more aggressively in their 403(b)s. Wruk suggests that they put 40% of their funds in an S&P 500 index fund, 40% in a large-cap international fund and 20% in a small-cap fund. That all-stock portfolio will likely fluctuate in value much more than one allocated partly to bonds. But Wruk says it's appropriate for the Cariagas because they are young enough, and good enough savers, to weather any likely drop in stocks. "We don't really watch these accounts closely," Retzer demurs. "Perfect!" Wruk declares. "You want to leave it alone."
• GET INTERESTED As soon as the Cariagas pay off their debts, they should start building their savings back up again, starting with an emergency fund. The fund should equal three months' living expenses, or about $10,000. But instead of putting their savings back into the low-interest bank account where it is now, he suggests they use the Vanguard Prime Money Market fund (800-851-4999), which has a minimum investment of $3,000 and recently yielded 4.8%.
• THINK CITIZENSHIP While it's not urgent, Wruk suggests that the Cariagas consider one day applying for U.S. citizenship. Citizens, unlike green-card holders such as the Cariagas, have a spousal exemption from estate taxes upon the first spouse's death.
Retzer and Lyn, who dream of doing missionary work in the Philippines, haven't decided yet whether to become citizens. But they eagerly embrace the rest of Wruk's advice. Says Retzer: "I wish I had it before I came here."
While the Cariagas' charitable outlays put the average American to shame, they have taken on more debt than they should, including a 17% time-share loan.
3 fast fixes
GET SPENDING UNDER CONTROL
Thanks to a ready supply of consumer credit, Retzer and Lyn Cariaga have found it all too easy to live just beyond their means--a problem hardly confined, of course, to immigrants. Here are three quick ways to tame the spending urge.
1 Get on the Page
Make yourself a simple spending plan--one that fits on a single sheet of paper. Then don't let yourself overspend in one category without cutting back elsewhere. "If you make financial decisions without seeing the whole picture," says investment adviser Madeline Noveck, "you'll sabotage your goals."
2 Get Hypothetical
Ask yourself: If my income were to drop by 50% tomorrow, where would I cut back spending? Use your answers as guidelines for cutbacks that you might well choose to make even with your present income. Budgeting is all about setting priorities; this what-if exercise will help you figure out yours.
3 Don't Go Overboard
If you need to cut spending, start with just two lines of your budget--say, clothing and meals out--and cut 20% or 30% in each. Don't do more than that, advises financial planner Jill Gianola. "It's like going on a diet and saying you won't eat sweets for the next year," she says. "If you get too ambitious, you fail."
THE NURSE NEXUS
• IF YOUR NURSE HAS A FOREIGN ACCENT, chances are he or she is from the Philippines. Of the 100,000 foreign-educated nurses here, half came from the former U.S. colony. (All of them must pass the same qualifying exams as their American-trained peers.) The nurse connection is a mixed blessing for Filipinos, however. While ex-pats sent $10.7 billion home in 2005, the exodus of skilled personnel has created critical shortages in the island nation's struggling health-care system.