Building on our previous discussion, we have been reviewing the Institute for Financial Literacy’s study of who filed bankruptcy in 2006.
The IFL study indicates that one of the better protections against bankruptcy — as most studies show with regard to financial success — is higher education. Folks with only a high school education or GED certificate represented almost 40% of the study population (of those preparing for bankruptcy), about 11% greater than the overall population. Obtaining an associates degree or taking “some” college did not particularly improve the odds of success according to this analysis.
On the other hand, those with bachelor’s or graduate degrees made up about 16% of the bankruptcy respondents, while they constitute almost 25% of the population. Whether it is the higher income available to those with college degrees, the skills which perhaps help with money management, the broader range of employment options, or some combination, folks with higher education levels are joining the ranks of bankruptcy more slowly than the general population.
The study also found that over 13% of the folks filing bankruptcy were unemployed while over 9% were retired and 4.5% were categorized as homemakers. And about 8% identified themselves as self-employed. If one assumes that a fair percentage of the self-employed folks are at least “under employed” or working in cyclical industries where business of in a downturn, the IFL study would indicate at least one-third of bankrupts are triggered by temporary or long-term drops in employment income or opportunities.
The IFL respondents corroborated these numbers themselves. One-third of them reported that job loss was a primary cause of their financial problems. And slightly more than half of them identified a reduction of income as a contributing cause.
Unfortunately the studies to-date have not yet focused on the length of unemployment or under-employment events. It would be useful to have more statistically-balanced data to confirm the anecdotal experience of consumers advocates, that American families are getting closer to the “edge” and have fewer reserves to draw upon when unemployment strikes. But given that the IFL findings reflect a much higher rate of bankruptcy filings among the unemployed than the general population (where unemployment claims are less than half this level), it is likely that unemployment is a triggering event — a moment of clarity that forces someone to think the unthinkable.
Other elements of these studies reflect the common experience of bankruptcy actors. The U.S. Trustee program has found that divorce is almost twice as often a characteristic of bankruptcy filers as the general population (21.7% vs. 12.2%). Curiously, the IFL study found divorced debtors at a somewhat lower level in 2006, about 15.9% of the respondents. (But virtually all those reporting themselves as divorced also reported that divorce was a primary cause of their financial problems.) Whether this drop-off is a statistical anomaly or an indication that divorce is declining as a contributing factor to bankruptcy will be interesting to see in the coming years.
Finally, the IFL respondents reported more than half the time that a unexpected expenses put them into financial distress. And consumer advocates would expect this will continue to be one of the most commonly-reported causes of bankruptcy. Despite the perceptions of many laymen and politicians, bankruptcy is still very much driven by the simple reality that most families are stretched too thin and events beyond our control.
The on-going work of non-partisan academic groups like the Institute for Financial Literacy are providing an invaluable, long-term understanding of the causes and effects of financial distress and bankruptcy. We will continue to report on these studies as they come out.
No related posts.
You must log in to post a comment.