Study: Visalians need to improve their money management

WalletHub ranks all Valley cities in the lower half of the country when it comes to money management

The Sun-Gazette

VISALIA – Visalians aren’t the best at money management, but they are better than nearly half of the country. 

With 45 percent of U.S. adults grading their knowledge of personal finance a C or lower, the free credit score web site WalletHub released its report earlier this year on 2020’s Best & Worst Cities at Money Management. In order to determine where Americans are best at handling their finances, WalletHub analyzed more than 2,500 cities based on 10 key indicators of money management skills. The data set ranges from median credit score to average number of late payments to mortgage debt-to-income ratio. Visalia was near the middle of the rankings in the 44th percentile but the best in the Valley with a median credit score of 671, a credit card debt-to-income ratio of 5.15%, mortgage debt-to-income ratio by 382.75% and a student loan debt-to-income ratio of 32.54%. In the Valley, Bakersfield had a better credit card debt ratio and car loan debt ratio and Hanford had a better student loan debt ratio while Porterville and Dinuba had a lower average of late payments at 3.9 and 3.8, respectively.  

Darlene Booth-Bell, assistant professor of accounting at Coastal Carolina University, was one of the experts who weighed in on the study. She said not having an emergency fund is one of the most common mistakes people make. For example, without an emergency fund, an unexpected medical bill or automobile break down can force a person into using credit cards and correspondingly carrying a credit card balance.

“No access to emergency cash can result in individuals increasing their debt load for normal, but slightly out-of-the-ordinary expenses,” Booth-Bell said. 

The rankings were based on 10 key metrics graded on a 100-point scale, with 100 representing the best money-management skills. In addition to the average residents credit card, mortgage, car loan and student loan debt-to-income ratios, late payments and overall debt level, the report also measured average percent use of credit card, financial behavior, median credit score, number of delinquent debtors and the number of adults with recent bankruptcy and the foreclosure rate. 

Experts say taking all of these factors into consideration is much more accurate than looking at someone’s credit score alone. Booth-Bell warned that while we often think of credit scores as pure data-driven information; studies have shown that credit scoring calculations may also assess the riskiness of the lending environment, and the products or loan features a consumer uses rather than the risk profile of the consumer. Studies done by organizations such as the National Fair Housing Alliance (2012) indicate that demographic factors such as race and ethnicity, or lower-income, can influence a person’s access to main-stream credit products and thus place them at risk for lower credit scores. For example, some lenders have been known to offer sub-prime products purely based on the zip codes rather than credit worthiness of the borrower. Fringe lenders such as payday lenders and check cashing companies have historically been a primary source of credit for underserved borrowers and are highly concentrated in low-income communities and communities of color. 

“A credit scoring system that penalizes borrowers who may not have access to a mainstream lender but had abundant access to fringe lenders cannot be inherently ‘fair’,” Booth-Bell said.

Money management is a life skill that unfortunately isn’t taught as often as it should be. It’s a skill that everyone should want to learn too, as it can bring about flawless credit and freedom from debt. But a survey of consumer financial literacy reflects a growing need for financial instruction in U.S. households. Only 55 percent of adults, for instance, give their knowledge of personal finance high marks, and just two in five maintain a budget and keep an eye on their spending.

Booth-Bell said the best way to ensure your children don’t make the same mistakes as their parents is to provide an allowance. Giving children a set amount each week for their everyday expenses such as lunches, movies, etc. can teach them how to make decisions about how much money they have, how to save some, and what to spend it on. These are skills needed to successfully navigate adulthood. Also, try to give children some tasks that allow them to practice their money management. 

“I have friends that gave their children $20 to grocery shop once per week,” Booth-Bell said. “The children were responsible for choosing a healthy meal and preparing it for a family of four. I thought that was a great idea!”

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