CC Transcript - August 19 Webinar: COVID 19 and Changes in Older Consumers’ Financial Well-being

<< HECTOR ORTIZ: Good afternoon everyone. Thank you for joining us today on this webinar where we will be examining the effects of COVID-19 and changes in older consumers' financial well-being. My name is Hector Ortiz, I am a senior policy analyst with the Consumer Financial Protection Bureau, and I am a researcher in the Office for Older Americans. My co-presenter today is Marie Rush, she is a research analyst in the Office of Research and the author of our April 2021 report that examined changes in consumer finances, including older consumers' finances. 
Most of you are familiar with our agency, and in fact, probably got the invitation through one of our lists. The CFPB is a federal agency that helps consumers finance markets work by making rules more effective and consistently and fairly enforcing the rules by empowering consumers to take more control over their economic lives. You can learn more about the agency work at consumerfinance.gov. 
We are committed to providing up-to-date information and resources to protect and manage finances during this difficult time. And as the situation of the pandemic evolves. We are, in recent weeks, focusing on the issues faced by homeowners and renters, you can find more information about our work in response to the coronavirus pandemic, consumerfinance.gov/ coronavirus.
And I want to disclaim before we begin the formal presentation that our presentations today are provided by representatives of the Bureau, does not constitute any legal interpretation, guidance, or advice. The opinions offered by me and my colleague are our views and may not represent the Bureau's views. 
In today's presentation we will cover what was the state of financial being of older adults in 2020. We will also look at the changes in the finances for older adults between 2019 and 2020, and we will look at these questions by examining some subsets of comparisons. We will start with a background of the CFPB financial well-being scale, and for those familiar with it, bear with me, I think it is important to always go back and explain the measure. We will also talk a little bit more about the survey itself, and some of the data and the limitations, so that you understand the kinds of conclusions we can draw from the data. We will also compare older adults with younger adults, and also look at specific subgroups of older adults. We will also compare financial well-being with other measures, particularly, specifically, credit scores and difficulty paying bills. We will have a specific focus on the percentage of older adults in group of older adults that reported a decline in financial well-being between 2019 and 2020. 
So let's start with a little bit of background on the CFPB's financial well-being scale, the definition of financial well-being, and how we measure it. The Bureau, since 2012, has been working on this concept of financial well-being, we started with one-on-one interviews with consumers, to learn what financial well-being meant to them. We did this with a broad set of consumers with different geographies, ethnics and racial backgrounds, and the definition you see here summarizes the views of consumers in all age groups, and a diverse population. And that it is a very holistic definition that has both concepts in the present, as well as dimensions of the future. Both from financial security and freedom of choice. It is a state of well-being that reflects a person's ability to meet current and ongoing financial obligations, as well as the ability to be secure in the present and future against financial choices, and also making choices that allow them to enjoy life. You can see there is an element of subjectivity in the definition. So there are elements of expectations, elements of preferences involved in how people measure and define their financial well-being. Even though it has that element of subjectivity, there is an entire field of psychometrics, that has done a lot of good work in helping us develop and validate, accurate and reliable ways to measure the concept. 
To measure the concept, we developed a scale to measure financial well-being and its subjective concepts, and that scale we have made it publicly available. We have validated it and have also tested the tool. The scale consists of 10 questions, those are the questions you see here. It has a variety of questions. One of them, question number five, I am getting by financially. It is one question that is used by the Federal Reserve specifically to measure annually in their Survey of Household Economics, the well-being of Americans. But as you can see, the concept of well-being is very holistic, it has other questions here like, giving a gift for a wedding, birthday, or other location will put a strain on people's finances at the end of the month. Their sense of control, like I am concerned, my finances controlled my life, as well as I am concerned of the money that I have will not last. The scale that we are employing for this particular study is an abbreviated version of it that has a .94 level of correlation with the 10 items scale. You do lose a little reliability, accuracy in the measure but it is usually used by researchers in their surveys, including the Making Ends Meet survey as well as the FINRA Financial Capability Survey  has used the five item scale. Let me skip one. The scale is actually as good as the way we score it, and to make a reliable and a strong scoring method, we also rely on psychometrics, to develop a strong scoring mechanism that pretty much relies on studying how difficult it is for a consumer or respondent to provide a given answer to each one of those statements. It behaves like an S.A.T. score, it quantifies the level of the concept, but also is the difficulty of the items. The score is normalized and standardized number. The scores primarily group around the score of 50, and the likelihood that you will find extreme cases, is rare in the scale like this. The scoring method has an adjustment for age and it has an adjustment for mode of administration. That is, pretty much, we found consistently that in the scale, the questions were answered differently if I asked the questions to someone, versus if someone went into the scale by himself or herself and answered the questions in a private setting. Again, some of those social desirability biases. Similarly, we saw that with age, a continuous sort of change with how the questions were answered. All of the adjustments are done in the scores that you will be seeing in this presentation. 
The Bureau has done a lot of work, and have a scale again from 0 to 100, to bucket those scores into categories. Through a benchmarking process, we have sort of put some ranges in the scores, and as you can see here, it goes from, in six categories, very low, to very high. We know that those buckets, consistently, are correlated with experiences, factual experiences. Whether it is having less than $500.00 in savings, to someone reporting difficulty with household expenses, being rejected for credit. You can see some of the drops in probability as you move up in ranges. No single experience match or has a full correlation with the scores. That make sense, financial well-being  is a holistic concept. But the second thing, we learned in particular from the study used to do the benchmarking, one of the things that we learned is that two individuals can have the same financial well-being score through two different means. I just always give the example of a younger adults who is struggling right now financially who has a very right future, in terms of career goals and perspectives of increasing income, and getting a raise. And you can have an older adult who is managing well financially in the present but concerned about their funds, or a long term care expense. Those two individuals can get the same score but with the financial well-being's contributing to that score being different. So now I am going to sort of turn it to Marie, who will describe the data and the findings. She will talk a little bit about the survey but also I know one question that has come through the chat is what to be defined as older adults, for the purposes of our offices are those individuals that are 62 and older. But the data allows us to cut it as we decide, but for the purposes of this study we did adults 62 and older. Marie. 

<< MARIE RUSH: Thank you, Hector. So all of the analyses that we will be discussing here today are from our Making Ends Meet survey. So the Making Ends Meet survey is a nationally representative survey of adults with a credit record, developed by the CFPB's Office of Research. The survey results provide a deeper understanding of how often consumers have difficulty making ends meet, how they cope with the shortfalls and the subsequent effects of financial difficulty. The sample for the Making Ends Meet survey is drawn up from the Bureau's consumer credit panel, a one in 48 identified random sample of credit records maintained by one of the three nationwide credit reporting agencies. The Bureau first conducted the first wave of this making ends meet survey in 2019. In May of 2019, we had about 2999 respondents. And the second wave started in May of 2020. We did subsequently do a third round of surveying in February of 2021, though the findings in this presentation will be focused on waves 1 and 2. 
Okay. So for our analysis we measured three key metrics over time. The first being the CFPB's financial well-being scale, the five questions survey that Hector showed before. We look at reported difficulty in paying a bill or expense in the previous year, which is a question that we ask on both waves of the survey. Which will ask the respondent if they had difficulty paying a bill or expense in the previous year. These questions are intended to capture whether the consumer is in a financial situation requiring her to make choices in order to make ends meet. Lastly we look at credit scores, consumers credit scores provide an objective measure of whether information reported to credit reporting agencies indicates that the consumer may not pay all debts as agreed. However, the credit scores do not reflect other important elements of the consumer's financial situation. And since we focused on changes in each of these three metrics, overtime, we limited the sample to those five values for each of the three metrics, which means responded to both waves of the survey. That left us with the final analysis sample of 1742 respondent. 
Okay. So before we get into the main findings I would like to touch on some of the limitations another considerations to keep in mind that the presentation. So, first of all I would like to discuss causality, it is important for us to know that we do not support any causal findings in this presentation, only associations. Another element here is the timing of the surveys. We do show many different results for different groups but when we conduct surveys, it is possible that if we were to conduct the same survey again, with different respondents, we would get different results. And then for sample size, as we just noted before, the sample for the analysis was nearly 2000 people, but once you start cutting into the smaller subgroups, the samples continue to get smaller. The smaller sample sizes to limit our ability to get reliable results or confidently assess whether the tendencies and patterns we are observing our significant. That is to say they are not just by chance. So, this brings me to the last point about statistical differences. We try to show you when a result is statistically significant, by using an asterisk next to the point. But just to know a couple of things, there are wide variations in financial well-being scores generally. As a result you don't necessarily see the differences in the averages, but you can see interesting patterns when you look at the distribution. And lastly, the lack of differences in and of itself is an important result, especially when you are looking at categories where you expect to see a difference. If you are interested, more detail on any of these topics can be found in the April report that we will be linking to later in the presentation. Again, we will touch on some limitations of the making ends meet survey, focusing on its representativeness. It is important to note that since the making ends meet survey is sampled from our Consumer Credit Panel, it is inherently designed to be representative of adults with a credit record. It will not include adults that do not have a credit record. However, as you see here, in the comparison to the American community survey, the shares against each age group are similar. The Making Ends Meet survey does tend to be slightly older than the ACS but that is partially excellent by the higher rate of credit and visibility among younger consumers. 
All right, now we are going to start looking into the financial situation of older adults in June of 2020. So we can begin by looking at the average distribution of financial well-being, among both older adults and those in the overall population. On average, older adults have higher mean well-being than younger adults. About five points higher. This finding is consistent with other surveys using this scale. In general, a score of 57 is placed in the medium-high category. Right on the line between medium-high and high. As Hector noted before, even in this category responded still do report some struggles. One out of five in the medium-high category report that they do not have $500.00 in savings. These bar graphs show you how the scores are distributed. In general only 5% of older adults have scores in the very low or low categories. Compared to about 11% among the overall population. And for any of you who may work on poverty issues, that percentage may seem low compared to poverty rates, but it is important to keep in mind that the financial well-being scale measure something different. Very low scores are indicators of constant struggle and hardship. Which is telling, because it means that 1 out of 20 adults, older adults, 62 and older, despite having access to social safety nets of Social Security, Medicare, Medicaid, and other supports, are still experiencing ongoing hardships and struggles. 
All right. So here we are showing the average financial well-being score and the percent of who have low or very low scores among older adults, by subgroups. On the right-hand side of this graphic you will see the green circles to the left of the black line indicate that below average financial well-being score, and circles to the right of the black line indicate above average scores. You can see there are slight differences in financial well-being across gender. But the largest differences are across the income levels. Not only in terms of average scores, but also the share with low or very low scores. 40,000 or less per year, almost doubled with low or very low scores. These findings also align with prior research by the CFPB and others using a variety of samples. 
Okay, now we will turn to what we found regarding changes in financial well-being. So we just finished talking about the status of older Americans in June of 2020, and we will look at how that has changed from June of 2019, into June of 2020. Okay, so first we found that overall on average, financial well-being scores increased for all adults between June 2019 and June 2020. The overall change was one point, for all adults, 18 and up. But then we see when we segment by age, older adults recorded an average decline of financial well-being between June 2019 and June 2020. Although the decline itself was not statistically significant. Younger adults, those 18 to 39, however did experience a large and statistically significant increase in financial well-being between June 2019 and 2020. The improvement was not shared by older age groups. In fact, the older age group is the only one to experience the decline in the financial well-being. And while we do not know for sure that the older age group did not experience a larger decline or potentially no decline at all in financial well-being, we can say with certainty that they did not experience the same large increase that those 18 to 39 experience. So this gives us the indication that the overall change in financial well-being is masking a larger increase among younger adults and either no change or decline among older adults. As we mentioned before the metrics for a metrics like the financial well-being score is useful to the distribution of the change. Here you see the same six buckets we have come back through throughout the presentation. And you can see how they have changed between 2019 and 2020. A very interesting pattern starts to play out when you look at the differences between the two years. The lowest buckets saw a decline, particularly in the very low category. Which is a good thing. But we also see a decline in the very high category as well as higher shares in the medium-high and high categories. Overall, between 2019 and 2020, there appeared to be a higher concentration in these middle groups and decreases at both ends of the financial well-being spectrum. So here we are looking at the changes in financial well-being among various subgroups within the older adult population. So you can see there are large differences between men and women, which is statistically significant. This finding was also true of the overall population, not just the older adults, but as you look at the differences between other groups, such as race, education, and income, these findings, while directionally are what we would expect to see, the absence of significance indicates there is a lot of variation within the groups. Just important to note. All right, so we will now focus specifically on those who have experienced a decline in financial well-being. So here we compare the share that had a decline in financial well-being with those that had a decline in credit scores or newly experienced difficulty paying a bill or expense between June of 2019 and June of 2020. We find again that 45 percent of older adults had a decline of financial well-being, which is a larger share of those aged 40 two 61, and those under 40. We also find that the decline in the financial well-being were generally higher than the decline of credit scores a cross all age groups. We also look at the percent of people that did not have problems paying bills or expenses in 2019, but did report difficulty paying bills or expenses in 2020. Among those 62 and older, 9% reported having difficulty in 2020, when they did not experience difficulty in 2019. Again, we noticed that the decline in financial well-being are more common than the other two metrics we are looking at. Which is not necessarily a surprise, considering the financial well-being score is designed to be a holistic measure. It captures some of the aspects of financial life, bad credit scores, or difficulty paying bills or expenses would not necessarily capture. All right. And now we will look at the decline in the financial well-being by subgroup. Again, so we are looking at differences among gender, race, income, and education. And we are also showing the average decline in terms of points. So, both the share within the subgroups that did experts the decline between 2019 and 2020, as well as the average point change, in financial well-being scale or score. And as you can see, again, overall 45% of older adults experienced a decline in financial well-being. There are some differences across subgroup, again highlighting the differences between gender, as well as the income groups. When we shift over to look at the average declines in terms of points, we can see the average score declined by 9.4 points, for all older adults. Which is large, considering the overall average change in financial well-being was only one point. For all survey respondents. And then when we are looking at the subgroups, the largest point decline was for those with a high school diploma or less. With the average financial well-being score declining by 11 point between 2019 and 2020. Okay, and finally we look at the share of those who experienced specific pandemic related events, who also had a decline in financial well-being. The most notable metric here is that those that received forbearance on a nonstudent loan trade line, which will most likely be mortgage trade lines, were less likely to report a decline in financial well-being. Only about 30% of older adults who received assistance were reporting a decline in financial well-being. This is about 15 percentage points less in the overall share of decline in that age group. Additionally, you can see that unemployment was less relevant for older adults. Older adults who became unemployed between 2019 and 2020 only 43% had a decline in financial well-being, which is slightly less than the overall share. And those whose expenses went up during the period, the same period, they were only slightly more likely to have a decline in financial well-being. So again, very important to point out and note the difference in the share who had a decline when they were receiving forbearance, compared overall averages and others who experienced different forms of financial hardship during the pandemic. And now I will turn things backed over to Hector, who will provide a broad discussion and summary of our findings. [ Pause ] 
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<< HECTOR ORTIZ: While financial well-being scores increased slightly for all respondents, older adults' well-being scores remained stable between 2019 and 2020, with a 0.1% decline. Again, not statistically significant. The changes in the distribution of scores between 2019 and 2020 suggests that the stability may have been the result of decline among those with the highest levels of financial well-being, and an increase in the financial well-being among those in the lowest levels of financial well-being. There are possible explanations for this unique pattern. We think that the improvements in those in the lowest levels of financial well-being, and the declines among the highest level, could be in the timing of the survey itself. And sort of the moment at which the survey was fielded, in June of 2020, most of the government aid had been provided, like forbearance was in place more generally, the stimulus payments had been distributed, unemployment, enhanced unemployment benefits were distributed. And some of the early uncertainty of the pandemic had been sort of, was gone. Yet, the stock market was still pretty low. For the older population, those particularly in the higher  segment of financial well-being, those are the individuals that likely are more likely to have investments, to have IRAs, and retirement accounts. It is likely that these, shows  in their sense of financial well-being, their concerns about the future. It is also noticeable that people also in the highest levels of financial well-being tend to be business owners, tend to be also individuals with higher incomes too, for which the unemployment benefits do not have the same level of replacement. So we think again that there is a combination of explanations that support the idea that the lower end and some of the uncertainty and sort of the challenges for those in the higher end of the distribution. 
In terms of subgroups, it is worth noting that older women, older adults of color and older adults with incomes below $40,000, which again, those with lower levels of financial well-being, cross-sectionally, like a one year survey, were the ones who actually reported, were less likely to report a decline in financial well-being. In fact, those were the ones for which we saw an improvement. This again could be a possible indicator of the impact of the various forms of government assistance on those groups. And yet it is important to note that despite the increase, as Marie said, the scores prior to the pandemic and even in June of 2020, the scores were lower than for others, it they were in a category that still showed a lot of struggle in this group, or high probability of struggle with some financial experiences and probability of paying bills, having difficulty paying bills.
 Also, it is worth noting that the percent of older adults reporting a decline in financial well-being was somewhat similar to the general population, a little bit higher, 4 points, but it was not significantly different. And it is important to note, again, that financial well-being, was the measure with the largest percentage decline. And that again speaks to the holistic nature of the measure, compared to, for instance, difficulty paying bills. That is a more fundamental hardship measure. And it is important to note again, that this other measures, particularly the ability to pay bills, if you think about it, that is a more sort of measure that is appropriate to examine the role of the safety net and to what extent our programs, like SNAP, Medicaid, sort of have the ability to protect individuals. And we did see that, in that category, the only one where the older adults, the percentage reporting decline was similar for older adults, as the other age groups. 
In terms of the factors associated with the decline, that was the last set of slides. I think it is important to note that the data was consistent and expected. Those who experienced an increase in expenses and an unemployment situation, where the ones with the higher probability of reporting a decline in financial well-being. But for older adults, it was particularly noticeable, the role of forbearance. For those of us that understand, or have studied on the issue of debt, particularly, given that the forbearance that is most likely being captured there is mortgage forbearance, this finding just shows that this was an important thing for older adults, even though again the majority of older adults probably own their homes free and clear. But for adults who still have a mortgage, it was an important factor to protect under financial well-being, during this period. And I think again, we just saw, we look at the relative smaller effect of unemployment, again say a signal of the lifestage of this individual, and somewhat the ability of some of them to be able to retire or claim Social Security early, when faced with an unemployment sort of challenge or another labor market related challenges. 
As Marie said, we conducted a third round, so it will be interesting to understand the impacts of the pandemic over time. I will say that our data is really consistent with what the Federal Reserve showed. They showed that particularly they measured well-being which a simple question, and they showed that it was consistent with 2019, that the highest point they measured, April, July, and November and the highest point was July. Somewhat similar with our finding and again with the entire population. But they did show that as they moved away from the June and July time period, when the aide was distributed, the percentage started declining again. We are looking forward to the February results and we will certainly be informing the field of what we find there. 
I want to share, as we conclude this, more information about our work and where you can find more information about our financial well-being scale, as well as our Making Ends Meet survey. All of the information that I shared here, somewhat is unique to this webinar. It was particularly focused on older adults. But it is sort of an extension of the work that was published in April of 2021. From our Office of Research. You can look at the report and you can learn more about the methodology of the survey, the questions, as well as the analysis for the entire the population. We also have, for those interested in the Financial Well-being Scale, we have an entire section on our website,  a hub, that has information on how to use the scale, case studies, we also have all of the resources that you need, from the interactive tool to get your financial well-being score, to the paper versions that you can use with clients, as well as reports that we have published on a variety of populations. And the toolkit specifically has benchmarks, complementary resources, and you can find this, again, in our financial well-being hub. You can also go and get your own financial well-being score both in Spanish and English. We have the scale available digitally and an interactive tool. Again, all in the hub.
 These are the three reports that have been recently published, you have seen the Making Ends Meet survey, the most recent one, in May of 2021, and we invite you to, again, look into our research and the report section of our website, to look at these, the variety of the reports that we have, including one on savings and financial well-being, as well, as the use of alternative services, and now we just want to open our conversation for further questions. 
Thank you again. And you all have a great afternoon.