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CFPB reveals new financial well-being findings

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Inside the Beltway
Friday, November 15, 2019

Research conducted by the Consumer Financial Protection Bureau (CFPB) to measure the average American’s financial well-being revealed that more than half of adults (ages 18 and older) would struggle to cover an unexpected expense of $2,000 or more.

The CFPB included state-by-state comparisons of financial well-being scores in a report detailing its findings, as well as a breakdown of financial well-being by age.

The scores are based on the CFPB’s analysis of the Financial Industry Regulatory Authority Foundation’s 2018 National Financial Capability Study. The CFPB’s Financial Well-Being Scale quantifies a person’s underlying level of financial well-being with a score between 0 and 100.

The scores are calculated based on an individual’s responses to the 10 questions designed to gauge a consumer’s sense that they: have control over day-to-day and month-to-month finances; are able to absorb a financial shock; are on track to meet financial goals; and can make the financial choices necessary to enjoy life.

Scores ranged from a low of 50 in Mississippi to a high of 54 in California, the District of Columbia and Hawaii. The average financial well-being score was 52 for the country as a whole. 

The average financial well-being score among younger and middle age adults (ages 18 to 61) in the examined in the report was 49 in 2018. During the same timeframe, the financial well-being score for older adults (ages 62 and older) was 62. The report also describes how score patterns vary by these age groups by state.

“Consistent with previous CFPB research on the relationship between age and financial well-being, the average financial well-being score for adults ages 62 and older is higher than the average financial well-being score for adults ages 18 to 61 in all states,” the report states. “Nationally, older adults have a score that is 13 points higher than adults ages 18 to 61. However, the gap between the average score between both age groups adults ranges from 18 to 8 points at the state level.”

Low financial well-being is directly associated with high poverty risk among consumers, the report explains.

“The traditional measure of poverty in the U.S. is based on the amount of income needed to cover basic needs,” the report states. “People who fall below this amount, also known as the poverty threshold, are considered to live in poverty. A 2016 bureau study found that financial well-being scores are closely associated with how the household’s income compares to the federal poverty level (FPL). Yet the analysis found wide variations in scores at each level of FPL. The research also found significant overlap between those living in poverty (below 100 percent of the FPL) and those living near poverty (100 percent to 199 percent of the FPL).”

Community Financial Services Association of America (CFSA) Chairman D. Lynn DeVault saw the bureau’s findings as vindication of the payday lending industry’s stated mission of providing a source of credit to struggling consumers.

“It is not surprising to see that nearly 57 percent of Americans would struggle to bridge a financial gap or pay an unexpected expense of $2,000,” DeVault said in a statement. “One of the many reasons millions of Americans choose to use small-dollar loans every year is to bridge financial gaps. Small-dollar loans are often the least expensive option for consumers, particularly compared to bank fees – including overdraft protection and bounced checks – or unregulated offshore Internet loans and penalties for late bill payments.

“Instead of seeking to regulate these products out of existence, as it tried to do in the past, we encourage the CFPB to work to ensure that all Americans have access to legal and licensed sources of credit in their communities. As the CFPB reconsiders its small-dollar lending rule, we hope it takes the needs and realities of these consumers into account,” she added.

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