Utah has the dubious honor of leading the nation in personal bankruptcy rates. According to the Salt Lake Tribune 1 in 37 households in Utah is insolvent. I suspect that this high level of bankruptcy filings may be what has been behind some recent words on debt in general conference. In 1998, President Hinckley counseled:
- I urge you, brethren, to look to the condition of your finances. I urge you to be modest in your expenditures; discipline yourselves in your purchases to avoid debt to the extent possible. Pay off debt as quickly as you can, and free yourselves from bondage.
More recently, he said:
- We have been counseled again and again concerning self-reliance, concerning debt, concerning thrift. So many of our people are heavily in debt for things that are not entirely necessary. When I was a young man, my father counseled me to build a modest home, sufficient for the needs of my family, and make it beautiful and attractive and pleasant and secure. He counseled me to pay off the mortgage as quickly as I could so that, come what may, there would be a roof over the heads of my wife and children. I was reared on that kind of doctrine. I urge you as members of this Church to get free of debt where possible and to have a little laid aside against a rainy day.
Obviously, there is a great deal of truth to what President Hinckley says. One of the iron facts of consumer bankruptcy is that at as personal debt increases so do bankruptcy filings. However, I wonder if there might be a more benign explanation for Utah’s personal bankruptcy rate.
Bankruptcy is correlated strongly with age. Younger people file bankruptcy more often than older people. This intuitively makes sense. Younger people often have less earning capacity than do people in the prime of their careers. In addition, young people have had less time to accumulate assets (like home equity) that can serve as a financial cushion in the face of economic shocks, like the loss of a job or major medical expenses. Utah has a much younger population than the nation as a whole. Thus, I wonder what happens to Utah’s personal bankruptcy filing rate once you control for its demographic profile. Does its striking prominence disappear? In other words, maybe Utah’s personal bankrtuptcy rate is not a product of rampant, Mormon consumerism, but rather is simply a matter of demographics.
Of course, what data we do have suggests that even if Utah’s level of consumer debt is average, it is still probably too high. Thus, President Hinckley’s stay-out-of-consumer-debt counsel is necessary even if their isn’t anything special about Utah’s insolvency rate.
The Utah Bankruptcy issues is all about our unique cultural demographics. We make less $ than any state in the union, we have larger homes(more rooms)than any state in the union, we have more children than any state, we have more cars than any state, we pay tithing and we send our sons on missions. If you combine these unique dempgraphics with the fact that members are not following the counsel of President Hinckley and living way beyond their means by running up high charge card debt it’s like mixing gas and paint thinner.The explosion is huge. Many active members of the Church believe that if they pay a full tithe the Lord will bless tham financially and bail them out of their debt problems. This is a false belief. We must follow the counsel of the prophet and stay out of debt if we expect to be blessed. If we make poor credit decisions and live beyond our means the Lord is not obligated to bless us.
David H: Perhaps you are correct, but to be honest with you, I would like to see some concrete data first. I have a strong suspicion that the age demographic alone would account for much of the divergence, which doesn’t require that you posit any difference between Utah and national consumption habits.
FWIW, most of the data that I have seen suggests that credit card and other consumer debt is not responsible for most personal bankruptcies. Rather, such bankruptcies are percipitated by finacial shocks like job losses or large, uninsured medical expenses.
There are several issues in Utah. One is that a higher percentage of Utahn’s try to repay debt using a Chapter 13 bankrupcy. When they fail to repay as scheduled, they are forced into a second bankruptcy – this time a chapter 7. Many of the families then have two bankruptcies and this certainly counts statistically. I actually think that the Mormon doctrine established in the article of faith “We believe in being honest”, makes many members of the church decide to try repayment schedules. A recent article in the Salt Lake Tribune discusses how Utah bankruptcy lawyers function differently than many in the country and this leads many families to file two bankruptcies, instead of just one. Mormon lawyers in particular will advise families to try to honestly discharge their debts through filing of Chapter 13, no Chapter 7.
The second reason I think that Utah has such a high rate of bankruptcy is because many parents are also students. These young parents are trying to work, raise small children and earn college degrees. I know one couple that ended up in bankruptcy after the husband’s home building business failed to sell homes rapidly enough. Both husband and wife eventually earned Master’s Degrees in Business Administration and are now very well to do. Certainly, couple like this could afford to pay slightly higher taxes to give tax relief to struggling young families.
Lastly, many couple struggle with the cost of daycare. I know one single mother who pays $800.00 per month for two children. Although she is a Registered Nurse and earns a decent wage, the extremely high cost of daycare stresses her finances. Her ex-husband is a recovering alcoholic who never pays child support. Utah women tend to have more children at a younger age. If anything happens to their husband (divorce, death, mental illness, disability or unemployment) they really struggle. Even women with college degrees struggle to afford daycare and medical care for children.
The bottom line is that Utah has got to start providing some tax relief for young families. We need to abolish the sales tax on items like milk and baby formula, Sure, we could continue to tax soda pop and potato chips, but honestly, it is a crime to tax baby formula.
I would raise the inheritance tax and lower the taxes on young, working parents. These parents will eventually get through college and earn great incomes. They’ll pay off large homes and ultimately leave large estates. Let’s tax people at the end of their lives (estate tax) instead of the beginning of their lives (newly married families, families raising young children).
Holy time shift, Batman!
I can’t supply any numbers, but I can mention kids as one additional factor. The authors of “The Two Income Trap” identify having children as the single best predictor of a family filing for bankruptcy.