CONSUMER FINANCIAL PROTECTION BUREAU
FINANCIAL WELL-BEING BY STATE
WEBINAR TRANSCRIPT


>> Hector Ortiz:	Welcome and thank you for your interest in learning more about how financial well-being varies by state.

	This webinar describes the findings of the Consumer Financial Protection Bureau, November 2019 report Financial Well-being by State.  The report provided the first state by state description of the financial well-being of adults in the United States, as measured by the CFPB Financial Well-being Scale. 

	
	This presentation is offered to you by the Consumer Financial Protection Bureau, also known as the CFPB.  

	CFPB is a federal agency that regulates the offering and provision of consumer financial products and services from the federal consumer financial laws and educates and empowers consumers to make better informed financial decisions.

	You can learn more about the Bureau, it’s functions, educational resources and work at consumerfinance.gov. 

 	
	My name is Hector Ortiz.  I am a senior policy analyst with the CFPB Office of Financial Protection for Older Americans and I am a lead researcher on the agency's financial well-being work.

	My co-presenter today is Carly Urban.  She is Associate Professor of Economics at Montana State University.  She is also the co-author of the report and an expert on financial well-being and financial literacy. 

	
	While this presentation is being made on behalf of the Bureau, it does not constitute legal interpretation, guidance or advice of the CFPB and any opinions and views stated by the presenters are the presenters’ own and may not be represent of the Bureau’s views.  

	
	We would like to begin this presentation with an overview of how we define and measure financial well-being.  I will also discuss how financial well-being differs from income and what we know about differences in financial well-being by geography. 

	
	Let's begin with how people define financial well-being. 

	To learn what financial well-being means to people the CFPB conducted open ended, one on one interviews with a broad diverse group of adults around the United States.  

	From these interviews, we developed the definition.  

	
	The definition shown in this slide is … a state of being that reflects a person ability to meet current and ongoing financial obligations, feel secure in their financial future and make choices that allow them to enjoy life.  This definition was built using people's own words, and as seen here, it has an element of financial freedom and financial security in the present and in the future.

	This element of the definition came up in all of our interviews of all ages, all regions and social demographics.  

	
	To reliably measure financial well-being, including the subjective component of the definition, the Bureau created the Financial Well-being Scale.  The scale of the first publicly available validated and tested tool to measure consumer sense of financial well-being.  

	The CFPB Financial Well-being Scale consists of 10 items. Those items are shown in this slide.  
	
	It includes statements such as "I am just getting by financially” and whether that describes your situation. Or how often is the statement “giving a gift for wedding birthday or other occasion put a strain on your finances for the month” (applicable to you).

	
	The answers to the statements are quantified and converted into a score, the Financial Well-being Score.  The score is a standardized number, similar to an SAT score,  to quantify the person's underlying level of financial well-being.  It is a number between zero and 100 with higher values indicating higher levels of financial well-being. 

	The scale is normalized at score 50 - that means that most scores group around that score.  The scores are also adjusted for mode of administration.  

	
	Based on our research and testing, we determined that consumers answer the question on the scale slightly different depending on whether someone read the questions to the respondent or the respondent self-administered scale.

	Similarly, based on our research and testing, we determined that consumers answer the scale questions differently depending on their age group, the scale user age 62 as the point that separates the populations by age.

	
	In 2016 the Bureau conducted a survey of nearly 6400 adults to examine the distribution of the scores in the United States.  Using the survey, the Bureau was able to develop specific ranges from very low to very high financial well-being.  These ranges reflect an increasing chance of experiencing such events as a credit rejection, material hardship or the inability to cover on emergency expense.

	The survey also confirmed that the average financial well-being of adults in the United States was 54, placing the average American in the medium high category.  The survey also allowed the Bureau to examine the relationship between financial well-being and income. This image shows the average the 10th, the 25th, the 75th and the 95th percentile scores by income. 

	As seen, on average financial well-being scores for adults increase alongside with income.  There is a significant variation within each category as well as significant overlap between categories.  Such discrepancies are expected because financial being is conceptually different and a more comprehensive measure than income. 

	
	In today's presentation we examine specifically how financial well-being varies by state. But before we delve into the results, we want to share some background on what we have previously found about the relationship between financial well-being and geography. 

	In 2015, when the Bureau conducted its in-depth interviews with adults across the United States to define financial well-being, we found that people's definition of financial well-being was the same regardless of geographic location and other demographic factors.  When we conducted our national survey, we also found no differences in the average financial being by census region.

	However, our interviews with consumers found that financial well-being is likely to vary in smaller geographic units like state or neighborhoods, because differences in employment opportunities and the availability of products and services vary at these geographic levels.  

	The report also suggested that the importance of this contextual factors is relatively different for older adults than their younger counterparts. 

	
	Now I will discuss the data source using the study and the study methodology.

	
	This presentation is based on data from the 2018 National Financial Capability study state by state survey.  The NFCS is a set of surveys that have been conducted every three years to examine the state of financial well-being in the United States and to examine how capability varies across demographic, behavioral, attitudinal and financial literacy characteristics.

	
	The 2018 NFCS State by state survey was specifically administered to an online sample about 27,000 American adults, roughly 500 per state plus the District of Columbia, between June and October of 2018.  The corresponding national state weights are applied to the data to obtain the financial well-being scores.  The data shown in the slides is descriptive in nature, and as such, it only shows relationships in not causation.

	
	The data is also cross-sectional, that is, it was also collected a one point in time and therefore, the associations between state, age groups and financial well-being are only specific to 2018, the year in which the data was collected.  Now, Carly will share with you the findings.


>> Carly Urban:	Thank you so much Hector. Now we're going to look at how financial well-being varies by state for all adults.


	Throughout the analysis, we're going to refer to states to include all US states as well as the District of Columbia. The average financial well-being for all adults age 18 and older in the US in 2018 was 52 and the figure shows that average state financial well-being scores range from 50 to 54. 

	Only five states have average scores that are significantly different from the average of all the other states. Those are California, Hawaii and the District of Columbia which are higher than the average and Louisiana and Mississippi which are lower than the average. 

	This figure shows the difference between the scores of the 10th and the 90th percentile within a state.  So this measure which we call the spread, depicts the disparities of financial well-being within that state.  While the national spread is 43 points, the spread of the state level ranges from 39 to 47 points, where Kentucky and Missouri have the largest spread, and Michigan is the smallest.
	
	
	So next we're going to turn to measures that look at the number of scores within a state that fall into different ranges that Hector previously described. As noted earlier, our research found that low and very low scores indicated frequent financial struggles and material hardship, while high and very high scores indicated the absence of both.  The data show that the percent of the adult population in the two lowest score ranges low and very low is 18(percent) nationwide, and the percent of the adult population and the two highest score ranges high and very high is 36 (percent).  The average national score falls into the medium high range.

	While nationally about 18 percent fell into the low and very low ranges, this varies from 11 percent to 26 percent at the state level.  For example, Mississippi had the highest fraction in the lowest two ranges, and Hawaii has the lowest fraction in the lowest two ranges. 

	Nationally 36 percent fell into the two highest score ranges, but this varies from the 31 percent to 44 percent at the state level.  So the District of Columbia had the highest fraction in those two highest ranges and Texas and Mississippi have the lowest fraction in the two highest ranges. 

	
	Next, we want to ask how does the fraction of adults in the low and very low ranges correlate with other measures that we've seen of poverty.  This figure depicts each state's poverty rate and the percent of adults in the very low or low score categories. While the two measures are positively correlated, the percent of the adult population in the low and very low financial well-being score categories generally exceed the percent of the population with incomes under 100 percent of the federal poverty line.

	This suggests that many people who earn above the poverty line income may have low and very low financial well-being. 

	
	Now, the difference between those two measures also varies by state and in only two states is the fraction of adults in the low and very low categories, smaller than the fraction of people below the federal poverty line. 

	In 25 states, the fraction in those low and very low categories exceeds those below the federal poverty line by less than six percentage points. And at the same time in 24 states, the fraction in the low and very low categories exceeds the fraction below the federal poverty line by six percentage points or more so it’s an even larger difference.

	
	So everything we've seen so far is looking at financial well-being by state for all adults 18 and over. Now we're going to split the data by two different age groups 18 to 61 year olds, and those 62 and over.  The average financial well-being score for younger and middle aged adults in the U.S. was 49 in 2018.  This is three points lower than the average for all adults in the U.S. that was shown earlier.  

	These state level average scores for prime age adults range from 46 to 52 and now 12 states have scores that are statistically different from the average of all other states. So this is seven more states that are different from the average when compared to the data with all ages.

	We again show the spread of scores for adults ages 18 to 61, measured by the difference between the score of the 10th and the 90th percentile.  The national spread in scores for this age group is 39 points, but the spread varies widely by state from a high of 43 to a low of 35. 

	
	Now, the average financial well-being for older adults those age 62 and older in the United States was 62 in 2018. This is 10 points higher than the average for all adults in the U.S., which was 52.  Statistically, seven states have scores that are significantly different from the average of all other states and the states with the highest average financial well-being scores for older adults are different from the states with the highest average financial well-being scores for adults ages 18 to 61. 

	This figure shows the spread of scores across adults ages 62 plus, as measured by the difference again between the scores in the 10th and the 90th percentiles.  While the national spread is 43 points, the spread and scores by state ranges - the spread in the scores by state range from 34 to 57 and there's actually more variation in the spread of state level scores among adults ages 62 and older than adults ages 18 to 61. 

	
	Next, we're going to look at the differences in averages between the two age groups within a state.  Consistent with previous CFPB research on the relationship between age and financial well-being, the average financial well-being scores for adults ages 62 and older is higher than the average financial well-being score for adults ages 18 to 61 in all 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 across the two age groups ranges from 18 to 8 points at the state level.

	
	Next, we're going to look at some additional data from the National Financial Capability Study to see how financial well-being correlates with measures of financial literacy, financial inclusion and financial capability.  First, we plot the correlation between average state level financial well-being and the Lusardi, Mitchell, Big Five financial literacy questions and you'll see that the two are positively associated.  So states with higher financial knowledge average scores on average have higher financial well-being scores as well.

	
	Next, we plot a relationship between financial inclusion and financial well-being by state.  We measure financial inclusion by the percent of households that have a checking, savings or money market account or a CD.  These variables are also positively correlated, and this slope is relatively steep, specifically states that are closest to having their full adult populations’ bank.  

	So over 92 percent of people bank have higher average financial well-being then states that are further from having their full adult populations on banks - so thinking those under 92 percent. 

	Another clear positive correlation exists between financial capability and financial well-being.  So states where more adults are certain that they can come up with $2,000 in a month if an unexpected need arose have higher average financial well-being scores and this is consistent with financial well-being capturing an individual's ability to absorb a financial shock. 

	

	So to summarize some of these main findings, we see that average financial well-being scores for all adults is generally similar across states.  However, the percent of adults with scores of the low and very low category vary significantly by state.  The financial wellbeing scores may also revealed that a larger percent of most states population is struggling financially than indicated by traditional poverty measures. 

	There are score patterns that differ by age group in some ways.  The average scores for adults aged 18 to 61 vary more by state than the average scores for adults ages 62 and older.  On the other hand, the spread of scores, so again, that difference between the scores of the lowest and the highest deciles vary more by states for adults ages 62 and older than for their younger counterparts - so those ages 18 to 61. 

	And finally, the states with the highest average financial well-being scores for older adults tend to be different from those with the highest average financial well-being scores for younger adults.  

	
	Now, I'm going to turn it back to Hector, and he's going to talk a little bit more about additional resources for those interested in learning more or conducting their own state by state analyses.


>> Hector Ortiz:	Thank you, Carly.  

	If you want to find the results that we shared with you today and more data, our November 2019 report, which is available online and listed here, provides that information.  If you're interested in conducting your own analysis to explain some of the trends and patterns that we discussed in the data, and examine further the relationship between financial well-being and other measures of financial literacy, capability and demographics, the NFCS data is available for download. 

	We are also making public the STATA code to replicate this analysis and score. 

	
	The Financial Well-being Scale, the score is available through the link provided in this slide.

	
	Lastly, I want to share with you some additional resources for those interested in using the scale with consumers or for your own research. The CFPB has a financial well-being hub that gathers all the reports, user guides and other relevant materials related to the agency's work on financial well-being. 

	This hub includes a link to the online calculator to get your own financial well-being score, but also you can use it with your clients.  You will also find a toolkit created specifically for educators.  The toolkit has case studies, benchmarks, and tips on how to use the scale.

	
	Thank you. That concludes this presentation.  Stay connected for new data and information on financial well-being.  Goodbye.


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