Episode Summary
In this episode, Johnny Mueller explores the financial and social systems of Latin America, offering expats practical advice on managing money, navigating legal structures, and dealing with cultural nuances. The episode is divided into several segments, each focusing on different aspects of life as an expat in the region.
In the first segment, Johnny discusses the credit card culture in Latin America, contrasting it with the first world. He highlights the 'lag time' effect, where credit card usage is still in its early stages and people are more prone to overuse and misuse. He shares personal anecdotes and observations about how credit cards are seen as a symbol of status and how disputes are often difficult to resolve. Johnny also advises expats to avoid using credit cards unless necessary, keeping them for emergencies only.
In the second segment, Johnny delves deeper into the use of credit cards in Latin America, particularly for expats. He highlights the importance of using a U.S.-based credit card for car rentals due to the insurance and damage coverage it provides, while advising against using such cards for everyday transactions due to the complexity and potential issues with international banking. He also notes the cultural tendency of many Latin Americans to use credit cards frequently, even for small purchases, and the lack of organized credit bureaus in the region, which makes obtaining a regular credit card difficult. Johnny contrasts this with the ease of obtaining debit cards, which are commonly used for payroll and daily transactions.
In the third segment, Johnny discusses the unique aspects of working and living in Latin America, focusing on the financial and social systems. He explains that many people in rural areas have direct access to debit cards without prior bank accounts or telephones. He highlights the concept of 'Kin Senna' (payday) and the associated payday queues at ATMs. Johnny also explains the legal requirement for businesses to pay employees 14 months of salary annually, including a Christmas bonus called 'Algi Naldo' and a summer bonus called 'Bono Catorce'. He notes that while these benefits exist, they are often inaccessible to the lower and middle classes due to the poor state of public services. Johnny emphasizes that many workers, especially those in domestic roles, prefer to work off the books due to distrust of government and banks, and they may expect the same benefits as formal employees during these bonus periods, despite the reality of expats not being able to provide them.
In the fourth segment, Johnny explores the dynamics between expats and local workers in Latin America, highlighting the contradictions and challenges expats face. He explains that while expats often provide extra benefits and higher-quality food to their domestic staff, they also encounter issues like poor hygiene, inadequate cooking, and cultural clashes. Johnny emphasizes the need for training and vigilance when managing domestic help, especially in countries with strict labor laws. He also touches on the broader context of labor laws in Latin America, explaining how they evolved due to political pressures and how they affect expats running businesses. The segment concludes with an example of a factory where macho and sexual dynamics create tension among workers.
In the final segment, Johnny recounts a story about a gringo boss who is involved in a conflict with a female employee who flirts with him. The boss's car is damaged by the employee's boyfriend, leading to the employee quitting without receiving termination benefits. Johnny Mueller then discusses the legal implications for expats working in Latin America, emphasizing the importance of using legal structures like SA corporations or offshore companies to navigate employment laws and avoid issues like mandatory benefits.
Topics
Credit card culture in Latin America, Comparison with first world credit card usage, Challenges in dispute resolution, Advice for expats on credit card usage, Credit card usage in Latin America, Insurance and damage coverage for car rentals, Cultural habits of credit card use, Challenges of obtaining credit cards in Latin America, Debit card accessibility and usage, Financial systems in Latin America, Workers' rights and benefits, Social and economic disparities
Chapters
00:00:00 Opening 00:00:35 Credit Card Lunacy in Latin America 00:01:48 Credit Card Industry in Latin America is Just Starting 00:03:17 Disputes Are Even Worse in Latin America 00:05:56 The Importance of U.S.-Based Credit Cards for Car Rentals 00:06:21 Why a U.S.-Based Credit Card is Beneficial for Car Rentals 00:07:04 The Practical Use of a U.S.-Based Credit Card for Car Rentals 00:11:20 Direct Access to Debit Cards in Rural Areas 00:11:37 The Legal Requirement for 14 Months of Salary 00:12:04 Expats and the Legal Requirements for Employing Workers 00:17:09 Contradictions in Expats' Treatment of Domestic Staff 00:18:14 Training Domestic Help for First-World Standards 00:19:33 Strict Labor Laws in Latin America 00:22:49 Macho and Sexual Dynamics in the Workplace 00:23:16 The Incident with the Gringo Boss's Car 00:24:57 Legal Considerations for Expats in Latin America
Transcript
Automatically transcribed from the original recording; names and wording may contain errors.
[00:00] South of the border down Mexico way That's where I fell in love when the stars above came up to play and now as I wonder My thoughts ever stray Hi everybody I'm Johnny Mueller and you're listening to the expat files Living in Latin America the show that tells you what it's really like to live work play and or retire in Latin America I tell it just like it is so let's get started You know there's some real credit card lunacy going on down here in Latin America again It's about the lag time everybody up in the first world knows that credit cards are poison
[00:45] Oh Except for the very first one you ever got then you felt like you're an adult and you were part of the real world Didn't you until you eventually max the sucker out and you were paying 20 30 even 40 percent interest on the damn thing Then you knew it was a piece of plastic poison, right? I remember 20 something years ago up in Chicago when my own sisters and brothers and family members would pull out their wallets at a Get-together or a dinner or a restaurant and when people started to pay with their plastic all of a sudden The waiter would come back with a sheepish look on his face and say your cards not going through And then you just shove that back in your wallet and go on to the next one And I remember way back when when something like that used to be embarrassing But these days it happens so often nobody really gives a damn Since there's always one more with a credit line where that came from maybe well
[01:33] I know for a fact that up in the first world the age of credit cards has matured and people are much more humble and conservative about using them lest they get into a heap of trouble and Many of us have first-hand knowledge on just how painful that can be I'm here to tell you though that down here in Latin America because of that good old lag time effect The credit card industry is not in its mature phase at all It's just getting started and man is it revving up in fact down here It's like it was in the 70s and 80s People are as proud as punch to have a bunch of credit cards to whip out The fact is some people actually make a big show out of it Equating like we did back in the 70s and 80s that the more credit cards you can accumulate and a higher credit limit They allowed the more self-esteem it seemed to give you man
[02:19] Are we superficial or what and if for any reason visa or MasterCard cut back on your limit when you open a monthly statement? And read that it's like hey, this can't be right What the hell is this and for a moment you're kind of embarrassed and you take it like a personal insult Now, you know how complicated those credit card bills can get at the end of the month Especially if you charge a lot of stuff, right? In fact, I read an article recently in a business magazine It said that fully 30% of Americans don't really understand all the charges on their credit card statements Sure, they do a quick scan through the list of items to make sure there's nothing on there They didn't buy but they don't look at the totals or add up the numbers or question the extra credit card charges and all the other Junk they pile on your bill. It seems like everybody
[03:05] I know up in the states has called the credit card hotline number because of some question or dispute Been put on hold for an hour and just eventually gave up. Well, I'll tell you down here in Latin America It's even worse much worse In fact for one thing it's virtually impossible to get any disputes rectified over the phone Even if you speak perfect Spanish you can forget about it And yes just like in the first world you'll get put on hold and get switched back and forth from operator to operator and Finally you'll give up and your alternative of course is to go down to the bank and sit around there for a couple of hours At least there they'll be people who speak English. So instead of hearing the words Los siento señor no es posible para araglado You'll be able to hear it in English. They'll say I'm so sorry, sir, but it's not possible to fix your problem at this time
[03:54] Some comfort a and that's why I always suggest when you come down here open up your SA corporation and get your bank account That you do get a credit card, but don't use it Yes, keep it in your wallet for emergencies and you do need it to rent a car and check into hotels and stuff But remember if you don't use it your monthly statements gonna be nice and clean and very easily readable now won't it? And if you do discover some error on their part, it won't take an act of Congress or two months to fix it So do you think Latins would ever take that advice? Never using credit cards is a totally first world thing And of course they love everything and anything that has to do with the first world way of life Thus credit cards and all their shapes and forms are all the fashion down here
[04:40] And if you don't have one or more you're kind of a nobody or maybe you're a low-profile expat who prefers it that way In fact when I'm at a restaurant and out with a Latin buddy or two and I let it slip that I haven't used My credit card for like six years Except when certain first-world style hotels for sure to scan it when you check in but generally you can even avoid that by Offering them a hundred dollar cash deposit. I've done that many times and it seems to work everywhere except at hard rock cafes And by the way almost every big Latin American city of a million or more has its own Totally gringo ized hard rock cafe now even in big cities completely off the tourist trail like Guatemala City talk about the Latin infatuation with everything in anything first world
[05:27] That's got to be the limit especially since the theme of a hard rock cafe is First world rock and roll music in English and when you're off the tourist trail only about one person in a hundred Knows enough English to understand the words of even the simplest rock and roll song You get the picture Anyway, even when a hotel or a car rental company asked for your credit card imprint You can still pay with cash then when you check out or bring your car back. They'll just cancel the imprint now One thing I should mention is that many gringos and expats have a credit card or two drawn on a US bank Well, that's all right, but I don't recommend you use that one either what you're trying to do when you come down to Latin America is simplify your life not make it more complicated and
[06:13] Again, what if you have a problem with your statement? You know, it's tough enough trying to straighten things out when you're sitting right in the bank Try it when you're 2,000 miles away But there is one very good reason to have a master card or a visa drawn on a US bank If you rent a car in Latin America and have them imprint that US based card It'll cover all the insurance and damages on that car If you ever read the benefits sheet that came with your credit card in the States I know the gold and the platinum cards at least provide that benefit But gold and platinum cards drawn on Latin banks don't provide that coverage Well, the thing is down here in many Latin American countries rental car companies even the big ones They only ensure third parties and hospitalization if there's an accident
[06:58] You're on the hook yourself for damages to the car if you get in an accident or it gets damaged in the parking lot or whatever Having a gold visa card from a Florida bank for example is a good move just for that reason alone and like I said Just don't use it. Let them run it through but in the end pay cash And I know if I did that up in the states I'd certainly be on some governmental watch list or ten since people who use cash all the time are considered suspicious But down here everyone loves cash go figure, huh? It's almost like it was real money Yet another reason why I love living in Latin America Now being down here a long time I know a lot of middle and upper middle class even wealthy Latins who have tons of credit cards and believe it or not These people charge practically everything. In fact, it's not unusual at all for that group of people to have
[07:49] 25 charges or more a month with each one of those purchases under $10 each Now I saw one of my Latin neighbors bills on his kitchen table about a week ago And I'm sure that monthly bill had more than 75 charges on it And I noticed a good percentage of those charges were under $5. Can you believe it? What a snoop I am, huh? But I was sitting at the kitchen table and it was laying right in front of me So why not have a peek and for all I know he wanted me to see it after all It's all about the show and you are what you own down here And then I said to him you must spend three hours every time you get a bill just going through the charges And he said who me I quit doing that a long time ago. He says I got my own method
[08:35] I just look at the minimum balance and add 25 bucks to it That way I know I'm always eating into the principal amount and in a way it didn't surprise me That's the way it is down here And unless a Latin person happens to be an accountant or a bookkeeper people do not check their credit card bills But then again, I bet a lot of people in Cleveland are the same way I know my dad never checked his credit card statements. He just shoved him in a drawer that looked like a rat's nest Oh, and by the way regarding expat Eddie in credit cards He could never even qualify for a credit card in the States His credit was so lousy, but here he could have 50 of them if he wanted, but he's smarter now and he knows better In fact, I'll tell you how ridiculous this credit card situation has gotten down here The other day I was at a restaurant in a pretty upscale mall and when I was finished
[09:22] I walked over to the parking kiosk and stood in line for deep waiting to pay my parking fee And I noticed that all four people in line in front of me paid their parking garage Charges with a credit card and I noticed that these guys were paying charges like three three fifty and four bucks here I thought they were nuts when they paid for a whopper or a happy meal with a credit card But now I've kind of got it figured out It seems to me and a lot of my expat friends who've noticed the same thing It's about going through the motions and making a show of opening your wallet slowly and fanning out your credit cards And selecting the proper one Man, I've seen that happen dozens of times for charges under five bucks Now needless to say that just means that the banks are making a killing
[10:10] But let me tell you it's not easy to get a credit card down here for the average guy because there really are no Organized credit bureaus down here yet like TRW So you have to bring in a lot of paperwork and show a big history of nice solid firm employment before you can get one However, that's for your regular credit card But getting a debit card is a completely different story turns out that anyone who's got any money at all in a bank down here Can get one because obviously you have to have that money on deposit before you can withdraw it So the banks are always covered and because of that lag time thing I've always talked about debit cards down here are not like some of the ones up in the states where you can Overdraw then of course you do get hit with huge interest charges and penalties
[10:57] But that only happens up in the first world down here That just hasn't happened yet and probably never will and like I mentioned in a past show The reason why there's so many debit cards floating around down here Even with people making only a few hundred bucks a month is that that's how companies pay their employees these days Instead of cash like it always was before it's direct deposit now In fact some people from the compo the farm country went directly to having a debit card without ever even having a bank Account before or for that matter even a telephone So if you get hired at one of these companies one of the first things they do is issue you a debit card And that's why every 15th of the month, which is called the Kin Senna Literally, it translates to the 15 days because it has the word can say in it, which means 15
[11:48] But to Latin's it means payday and on every Kin Senna as you drive around you can see people are lined up 10 and 20 deep and practically all the ATM machines in town Oh, and by the way, I should mention this because we're getting towards the end of the year now One thing that you expat wannabes have to know is that if you start a business down here and have employees on The books that is that means your company is registered with the government and totally legit and all that Well if it is and you hire employees you'll find you'll have to pay them two extra salaries a year That's the law throughout Latin America, and I'm not talking about two extra weekly salaries I'm talking about two extra months of salary so in effect all Latin workers that are working on the books
[12:34] You'll end up paying them 14 months salary a year Now as you might have figured one of those freebie monthly salaries comes right before Christmas And it has a latin name in many countries called Algi Naldo, which translates in English to Christmas bonus But like I said, it's not a gift It's a worker right and then in June of every year they get that other second month's pay And it's called the winter bonus in some countries and bono catorce in others And bono catorce just means a bonus on June 14th Even though the word June is not in the phrase the word hunio still it's implied But there is the word catorce which means 14 and by the way when they call it the winter bonus that might be confusing Because June is the summer well for all you guys up north it is but down here in Latin America
[13:24] They call the rainy season the winter and they call the dry season the summer and about 80% of Latin America only Has those two seasons the other seasons start kicking in when you get to southern Brazil and northern? Argentina as you cross the Tropic of Capricorn So in reality only parts of Chile Argentina and Uruguay actually have those four seasons like most of the United States does But because it's South America you get them in reverse So anyway, we're talking about workers rights in Latin America workers on the books That is now the thing you have to realize is that about 30 to 40 percent of all the workers in Latin America work off The books meaning they work for cash They don't file tax forms don't belong to their country's social security system or their country's national health care system
[14:12] And yes, the majority of Latin American countries do offer their workers those perks But only the lower middle class and poor ever really take advantage of those perks because the national health care systems are all Disasters and the government social security and pension plans are basically broke and if they do pay out to retirees It's only a hundred to a hundred fifty bucks a month So basically the upper middle classes and the wealthy don't depend on those two systems at all They have private health care and pension plans But in this discussion we're concentrating on the guy that makes 250 to 300 bucks a month the common man The barber the truck driver the cook the cashier and those kind of folks now Like I've mentioned so many times before most expats Have a cleaning lady and a gardener and I guarantee you that these people will be working off the books
[15:00] for cash the fact is most of these people don't want checks because Many of them don't have bank accounts to make a deposit and another thing that's good to know these cleaning lady Gardener types and maintenance people if you were to offer to sign them up as a real worker in the government system In other words put them on the books as tax-paying employees They probably wouldn't take the job Because you see the lower middle class and the poor folks down here have a very very healthy mistrust of government and of banks, too Those people have long memories of government massacres coups land grabs eminent domain banks crashing and their directors running off with the funds and of course the status quo down here is lying thieving politicians Doesn't that sound familiar?
[15:45] So my point is your household help if you're living off the tourist track Anyway will not want to be on the books and you got to hand it to them They do want to keep their distance from government sure They'll take the government handouts right before election time t-shirts hats sacks of rice and fertilizer Then of course they go out and vote for the party that gave them the bribe But that's about all they want to have to do with their government besides of course sending their kids to school And that's only because it's basically free and kids actually do get a breakfast or a lunch most of the time and that Sometimes breakfast and lunch is one of the big reasons why folks in the boonies send their kids to school in the first place If not, they'd be feeding the chickens and working mom and dad's plot a land an extra set of hands
[16:32] You know But the funny thing about your household help who insist on working off the books when those two extra pay periods come around each Year that bono catorce in June and that alginaldo around Christmas time They'll expect you to fork it over to as if they've got the same workers rights as someone who's on the books Now I don't want to sound like a harsh employer who cracks the whip because these guys are really living on the edge And the reality is us expats don't crack the whip. That's why locals like working for us In fact, like I said before most of them in their own homes are actually cooking with wood and many of them don't have indoor plumbing And you know most expats are glad to give them that extra month salary, but in a way It's kind of a contradiction and let me repeat let's just love working for gringos because we're giving them extra stuff all the time and they eat higher quality food too because they're
[17:24] Eating from our pantries and our refrigerators because obviously if you have a live-in or full-time made or gardener They'll bring a sack lunch, but it'll be so pathetic you'll end up offering to feed them too And that's another soft spot us expats have and another reason why they like to work for us In fact your maid will most likely be doing the shopping and the cooking too And we'll talk about how you should train her to do those things in the kitchen on a future show So stay tuned for that because believe me you just don't hire a cleaning lady Send her out shopping for food and when she comes back ask her to whip a little lunch or dinner together for you Because if you do that you're gonna get what her family eats rice beans tortillas and chili peppers a glass of artificial Kool-aid or tang and maybe a sad-looking chicken leg with the claw still on it floating in your soup
[18:14] So understand it's gonna take a little training to get her up to first-world speed You know and the personal hygiene issue is a whole different question and that'll have to be addressed in its own way, too Unless of course she'd worked for a first-world person before you then she might be well on her way and already broken in But just remember I do recommend that you stay somewhat off the tourist trail So the chances that she worked for a gringo or a first-world person in an earlier position is slim to nada So you'll be the one that has to whip her into shape and believe me old habits die hard Especially in the hygiene department. So in her first few weeks on the job, you have to be pretty vigilant But it's not brain surgery, you know So let's talk more about employees and employee benefits because you're gonna need to know this whether your workers are on or off the books
[19:03] You're gonna have to give them their usual vacations And we don't need to go into any great detail here because it's pretty much like the first world Generally after the first year you get a week's paid vacation, etc. Etc. Now. Here's something important What about termination pay in most Latin countries when you fire someone or lay them off you have to give them Termination pay that's true in a strict sense But only when someone's working on the books now, you see down here Even though the minimum wage is like ten bucks a day Even so the labor laws down here are very pro worker and in some Latin countries they actually enforce them quite rigorously and those countries would be of course Costa Rica Panama, Argentina Chile and now Brazil all those countries on the tourist trail that we recommend you avoid for a lot of different reasons and a big
[19:52] Part of that is a growing bureaucracy and first world style taxes But back to those pro worker labor laws which are present in all Latin American countries now You might ask how did that happen? How did that legislation get passed when people on average make only ten or fifteen bucks a day? What's the point of having pro worker labor laws when 50% of workers and families are living on the edge like that? Well, it's simple. It boils down to politicians and elections Wouldn't you know it somewhere along the way the politicians in every Latin country realized that if they promise things like that minimum wage laws over time paid vacations Alguinaldo bono catorce and worker termination pay well Why wouldn't the sweaty masses vote for political parties who promised such things and in that respect the political parties actually?
[20:44] complied and why do you think they did that when they promise other things and don't follow through because in the end it's no skin off their backs the financial burden of those laws is shifted directly 100% on the factory owner and the businessman So what about those pro worker termination laws that some of you might have heard about now? Every country is a little different when it comes to the renumeration packages But typical termination pay includes three months salary plus 20 days for each year worked Plus prorated vacation and Christmas pay now a lot of my expat friends who have businesses like expat eddie They've had to fire some employees for various reasons like for example being late all the time or stealing Or in the case of male employees fighting on the premises or harassing the females
[21:33] Which in a macho society is a very real problem believe me Basically an employee is entitled to termination pay if he's been working at a place six months or longer and has been terminated That is unless the employment was for a specified time only like building a house or a garage for example And that's why if your workers are actually on the books You should have an employment contract that stipulates all this stuff and your lawyer will protect your good and proper in that case now being That Latin America is very macho and your workers will probably be lower middle class that is smart But not educated anyway It's the macho sexual issues that throw us gringle owners and bosses for a loop for example Expat eddie's got a gringle friend who owns a mill where they make all kinds of cloth for export
[22:23] And he has about 25 employees all of them women eddie says sometimes they have boyfriends and husbands who aren't working So the working woman is the sole supporter of the family and some of these unemployed guys Come around at noon and after work to meet up with their wives and girlfriends and obviously hit them up for money and stuff And of course these guys aren't allowed past the guard station nobody is unless they actually work there now it turns out When you have a lot of girls working in a factory. It's kind of like a soap opera There'll always be a couple of good-looking girls who the dowdy girls resent anyway One of the better looking girls at this factory was a kind of a flirt She was a coquetta like I explained in the last show a flirt And she'd flirt with her gringo boss, too, and he never responded to it
[23:10] He was professional and all that but the other girls in the factory did notice and the flirting continued And after she'd been working there about a couple of months the gringo boss himself was working a little late one night and around six o'clock Just as the Sun was setting he went out to go get his car which was parked in a guarded lot across the street But the guard was lax and not all that vigilant Anyway, the gringo owner goes to get his car a late model Honda Pilot SUV not recommended for Latin America But some people never learned Anyway, he gets to his car and he's got a flat tire and a broken window and the guard who was watching TV and the guard Jack never saw a thing typical However, when the gringo drove out of the lot he noticed right across the street
[23:56] There was a guy standing there with his arms crossed nodding and kind of taunting him It was way too obvious to be a coincidence and the gringo recognized him He was the boyfriend or a husband of the nice-looking girl that had been flirting with him ever since he hired her And he'd recognized this guy a streetwise tough-looking guy because he'd seen him a few times Hanging around the game when the girls would walk off the grounds and have their lunch and the gringo found out a few days later Through the grapevine that someone had tipped off this guy that his girlfriend and the gringo boss were well You know Not only did he screw up the bosses car the girl came back to work the next day nursing a couple of bruises on her face and neck and on the next
[24:41] Kinzana she collected her pay and never came back to work again And that's one of the conditions where the employer doesn't have to pay termination benefits if the employee quits voluntarily Or doesn't show up Termination pay is not required Oh and another thing if you're a foreigner like me and you get hired by a corporation down here and that could very well happen because you're a teacher or a first-world professional a Biologist a chemist an engineer a computer specialist or like me I've been hired by various radio stations most often to get around immigration the government and all those employee laws They'll offer you work as an independent contractor There's no vacation pay or algae Naldo or a bono kotors say or termination pay
[25:28] None of that only what stipulated and agreed to in your personal contract with them But to make sure all is kosher with the government The only way they'll hire you is if you agree on each pay period to provide them with a factura a legal registered numbered receipt and if you're a green gringo and someone offers you a job like that you have to wonder where you would even start Well easy you get a lawyer and you start one of those society Anima corporations I talk about and your SA corporation will give your new employer that receipt every time you get paid and since that Society that Anima corporation is registered with the government It will report your income as earnings and pay the designated corporate tax for whatever country you're incorporated in and
[26:17] In those countries. We like to start those SA corporations We always make sure that the corporate tax there is Ridiculously low compared to first-world corporate tax rates for example if you set up a police offshore company called an IBC a police International business company its earnings are exempt from all corporate and business taxes and are subject to no reporting or filing requirements at all and to think they used to call the late great USA the land of the free Now before I finish here, I'd like to make an announcement or two due to a little unforeseen schedule shuffling I have two maybe three openings for my Latin American seminar that takes place in mid January So if you're interested go to expat wisdom calm and click on the seminar link and just a quick update to loyal listeners
[27:07] If you want to listen to and read more about the expat life Especially how to live the good life off the tourist trail like my expat friends, and I have been doing for a long long time Just touch base with our growing expat community and search for expat wisdom on Facebook or Twitter It would be great to have you guys following along on those sides, too So again just search for expat wisdom on Facebook or Twitter, and I'll see you there You've been listening to the expat files living in Latin America coming to you each week from somewhere south of the border And don't forget you can email me on anything at all about Latin America the expat files at gmail.com See you next time