Cultural Differences in Financial Behavior Research Paper

It would not be an exaggeration to suggest that economy should be seen as one of the important elements of the social environment. That is why it is natural that it would be affected by other dimensions of the society. As a result, in spite of the fact that the cultural norms are seemingly not related to the economy, they are able to influence the financial behavior of every party that it involved, ranging from an ordinary consumer to large multinational corporations. Cultural norms affect financial behavior a lot and the process of globalization increases the importance of understanding this relationship.

Overview of the Relationship Between Cultural Norms and Economy

To begin with, it is important to state that there is no single framework that can provide an exhaustive analysis of the culture of a certain country. The theory that was developed by Geert Hofstede relies on six primary dimensions that can be used to describe every culture. Each of the dimensions is a range of values with two extremes. The first dimension is Power Distance: it measures the extent to which ordinary people can influence power structures. The second is Individualism versus Collectivism: whether an individual viewed more valuable than a group. The third dimension is Masculinity versus Femininity. It reflects that way in which a culture tends to cope with the conflicts. The fourth dimension is Uncertainty Avoidance Index. It stands for the desire to think and act in clearly articulated ways. The fifth dimension is Long versus Short-Term Orientation which depicts the general tendency to think in a long or short-term perspective. Finally, there is a dimension that is formed by Indulgence versus Restraint. These terms are self-explanatory and stand for the tendency of the people to choose one of them. Though the theory of cultural dimensions is not the only one, it is generally seen as the most helpful when it comes to understanding the differences between cultures.

Another point that needs to be mentioned in this regard is that economy can also be seen as a kind of cultural interaction. In other words, it is not only the economy rules and regulations that need to be taken into account, but also the way in which people interact with each other in a given society in general. This leads to the understanding that through the influence of culture may not be direct, it is surely important and needs to be taken into account.

As for the degree to which culture can influence the economy, one should keep in mind that the distribution of wealth in the world can be correlated with certain cultural principles. In other words, it would be wise to relate financial behavior to culture as the latter shapes the mind of the people as well as the way in which they perceive the world. That is why my understanding the culture of a specific country, a scholar will be able to make a comprehensive prediction about the financial behavior of the people who live there.

The Example of the United States

Now, it would be logical to apply to concepts that were mentioned before to a country and review its financial behavior. Given the fact that the United States enjoys one of the strongest economies in the world, one might benefit from examining this example. So, this country scores high on Individualism scale which is one of the characteristic features of it (Raaij 35). This can be positively correlated with the spread of entrepreneurship in the county. Indeed, even the famous American Dream encourages people to facilitate upward social mobility through the personal economic endeavor.

Another point that needs to be mentioned with regard to the American financial behavior is that this culture scores low on long-term orientation. This means that the entrepreneur tends to focus on achieving short-term benefits over the long-term ones (Raaij 192). This can be supported by the example of famous American cars that feature extraordinarily high consumption of fuel: this is not something that is beneficial in the long term. Moreover, the appreciation of sustainability is relatively recent in this country as it is interfering with the primary pattern of financial behavior. All this leads to the understanding that this an important characteristic of the culture of this country.

Furthermore, one should note that the Americans also score rather high on the indulgence scale. This means that these people are likely to spend more on sometimes that are not vital and can be enjoyed. This explains why the entertainment industry is so widely developed in this country: people there will pay a lot to gain access to high-quality entertainment (Raaij 49). In addition to that, high indulgence also explains why the Americans often buy products that they do not really need, especially if they are popular. This is something that needs to be considered.

Finally, one might assume that the fact that the Americans score low on power distance has shaped their financial behavior to a large extent. This means that the companies, as well as ordinary people, believe that they are able to influence power structures and, therefore, can exercise some influence (Raaij 72). This might be the reason why entrepreneurship is so successful there as people are confident in their powers to start a business that will be successful in the future and the state will not be able to interfere with it.

The Example of Arabic Countries

It would also be quite useful to examine the way in which other cultures influence the financial behavior of the people. With this in mind, one might turn to the Arabic cultures and see how life there, including the economy, is influenced by culture. First of all, one should keep in mind that in many of those countries are influenced by the religion law – Sharia (Sarma 11). This means that many aspects of the economy that people in the West take for granted are prohibited in those countries. On the other hand, many activities that are appreciated in the West, but are not practiced widely, like almsgiving, are mandated in those countries.

Furthermore, one might speculate that the Arabic countries feature the so-called mineral resource mentality. Indeed, these countries are extremely rich in petroleum which is an extremely valuable substance at the moment. That is why their culture finds no contradiction in exploiting the nature to achieve high income (Sarma 91). This clearly those that the people there also score high on Short-term orientation scale and are interesting in enjoying selling valuable substances without producing something innovating. In other words, the culture approves of this kind of behavior.

This logically leads to the third peculiarity that needs to be examined, namely whether culture approves of trading. It is worth mentioning that historically Arabs were known as successful merchants as they would facilitate trade not only their region, but also in other places. However, after rich resources of oil and gas were found, the structure of trade shifted dramatically and they starting selling raw materials (Sarma 113). Might explain why there are no prominent stock exchanges in this region as trade as such is no longer popular; the culture approves of making a living out of selling mineral resources.

Finally, one might speculate that the Arabic culture also puts emphasis on the need to enjoy wealth and make it visible. There are many iconic images of the wealthy people from the Arab countries that consume luxurious products on a daily basis (Sarma 95). The important point to mention here is that this kind of financial behavior when money is spent on the products that are not basic is positively correlated with the concept of indulgence. That is why it would be fair to assume that culture of this region supports exhibiting one’s wealth and, therefore, people are likely to act accordingly.

The Importance of Globalization in This Context

Finally, it is essential to review the role that globalization plays when it comes to the way in which culture influences the financial behavior. Thus, it would not be an exaggeration to suggest that companies often transgress the national boundaries and enter new markets (Besley and Peters 57). This is extremely important as this predicts that their patterns of financial behavior will interact with the local patterns of financial behavior. As a result, a company should be interested in understanding the peculiarities of the local culture and how it influences the economy so that it can become successful.

This is critical for the development of an organization since it will enable it to reach more markets and more consumers. The evidence suggests that the most successful companies nowadays are multinational enterprises (Besley and Peters 88). That is why the relationship between culture and financial behavior should not be seen as an abstract one, but rather something that has real-life value and will be able to contribute to the future of an organization. The process of globalization will only enhance this because it will expose more companies to new markets.

One can hardly disagree with the idea that when one pattern of financial behavior enters a new cultural domain, the change is inevitable. Therefore, the examination of the influence of culture plays an important role since it points out the direction in which the pattern of financial behavior needs to be changed (Besley and Peters 19). All this leads to the understanding that globalization marks the new chapter of the behavior of the economy since the latter takes into account the peculiarities of the countries of the world and makes sure that an organization is able to adapt to the new condition.

This logically leads to the understanding that globalization is able to help companies reach the high of their potential as it will place them in a new environment and encourage them to adapt. As a result, it is not only the fact that culture can influence the financial behavior of the people that need to be recognized, but also the extent to which the former can modify the latter (Besley and Peters 19). Therefore, it would not be helpful to adopt a one size fits all approach to the global economy since the diversity of approaches will ensure the success of the parties involved.

Conclusion

Having examined all the points that were mentioned in the paragraphs above, one is able to come to the following conclusion: the evidence of the influence of culture on the financial behavior is beyond any doubt. The theory that was developed by Geert Hofstede was applied to examine the way in which culture forms the preferences and the behavior of the people. There are six major cultural dimensions that need to be taken into account in this regard. It was shown that the peculiarities of the United States and the Arab countries are positively correlated with the cultural dimensions. The important role of globalization has also been explored.

Works Cited

Besley, Tina, and Michael Peters. Interculturalism, Education, and Dialogue. P. Lang, 2012.

Raaij, W. Fred van. Understanding Consumer Financial Behavior: Money Management in an Age of Financial Illiteracy. Palgrave Macmillan, 2016.

Sarma, Sarmistha. Global Observations of the Influence of Culture on Consumer Buying Behavior. IGI Global, 2018.

The terms offer and acceptance. (2016, May 17). Retrieved from

[Accessed: March 29, 2024]

"The terms offer and acceptance." freeessays.club, 17 May 2016.

[Accessed: March 29, 2024]

freeessays.club (2016) The terms offer and acceptance [Online].
Available at:

[Accessed: March 29, 2024]

"The terms offer and acceptance." freeessays.club, 17 May 2016

[Accessed: March 29, 2024]

"The terms offer and acceptance." freeessays.club, 17 May 2016

[Accessed: March 29, 2024]

"The terms offer and acceptance." freeessays.club, 17 May 2016

[Accessed: March 29, 2024]

"The terms offer and acceptance." freeessays.club, 17 May 2016

[Accessed: March 29, 2024]
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