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Employment data is one of the notable exceptions, but when it comes to most widely followed economic data points, reports are delivered in aggregate national fashion.
That is to say there is some homework required to find state-level impact on issues such as inflation, bankruptcies, auto and credit card delinquencies and the like. However, there is considerable value in zeroing in on localized data points.
After all, how macroeconomic issues affect clients on the West Coast could be different than the effects felt by clients in the Midwest or the South. What’s interesting, however, is that financial distress knows no regional bounds. That’s probably not surprising, but it is something advisors should be aware of. Consider the findings from WalletHub’s recently published survey of the most financially distressed states.
Before delving into the regional implications, let’s examine how the research firm arrived at state-level composite scores. Those scores are comprised of state-level credit score rankings, number of residents with accounts in distress, year-over-year changes in bankruptcy filings and internet searches related to debt and loans.
These Three States Have Lots of Financially Distressed People
Obviously, there are 50 states and due to the confines of time and space, I can’t address each individually here. However, the three with the most people in financial distress are regionally diverse, so that could be instructive to a wide swatch of advisors. Those states are, in order, Michigan, Texas and Nevada.
Bad credit scores are often giveaways of financial distress. Take the case of Michigan. The state ranks 44th in terms of average credit score and first and second, respectively, in terms of average number of accounts in distress and number of residents with accounts in distress, according to WalletHub.
Interestingly, credit scores aren’t fail-safes when it comes to identifying clients that might be having financial difficulties. Texas and Nevada rank fourth and fifth, respectively, in terms of average credit scores, but those states’ financial distress composite scores are poor.
The inclusion of Texas and Nevada also confirms that folks living in low or no income tax states aren’t immune to financial distress. Including that pair, seven of the 10 states that score the worst on the WalletHub survey are low or no income tax states. Three – Michigan, Rhode Island and New York – have high taxes and costs of living. Likewise, the top 10 states in the study include a mix of high tax states (Connecticut and Vermont) and low tax equivalents (Wyoming and New Hampshire).
Be Careful About Assumptions
In today’s highly contentious political environment, some folks may seek to draw political conclusions from the WalletHub survey. Indeed, the research firm says the average rank for a blue state is 28.24 compared to 22.76 for a red state.
However, that’s based solely on how the states voted in the 2020 presidential election and it doesn’t seem to allot for the status of some states as “purple.” Of the 10 states with the worst composite scores in terms of personal financial distress, four are arguably purple – Michigan, Nevada, Georgia and North Carolina. Four are reliably red and two – Rhode Island and New York – are deep blue.
Interestingly, high unemployment rates aren’t always harbingers of financial distress. Of the 10 states with the worst jobless rates, only Nevada, Rhode Island and New York are also among the 10 worst offenders on the WalletHub list. California, which is tied with Nevada with highest unemployment rate at 5.2%, is in the middle of the pack in the WalletHub survey at #26.