Predictor Financial security

Having the financial resources to withstand unexpected income losses, health emergencies, and other crises supports people’s economic success and sense of power and autonomy.

Evidence on the Relationship between Financial Security and Upward Mobility Outcomes

As of December 2021, researchers have documented the following connections between this predictor and upward mobility. Asterisk (*) indicates primary reference. 

  • Having even a small amount of savings (between $250 to $749) reduces the likelihood of a family experiencing housing instability, and low-income families with moderately sized savings (between $2,000 to $4,999) are more financially resilient (i.e., less likely to experience a hardship after an income disruption) than middle-income families with no savings (McKernan et al. 2016*).
  • One in five adults in the US struggles to meet medical costs, but Black people continue to be hit the hardest. In a poll conducted by the National Public Radio, 24 percent of Black families said they have had difficulties paying for necessary prescription medications (Neighmond 2013). McKernan, Brown, and Kenney (2017) report that nearly one in three Black people, ages 18 to 64, have past-due medical bills. Beyond the immediate difficulties of paying them off, these bills can end up on people’s credit report and lower their score, which can create barriers to securing a loan.
  • Having access to credit can be incredibly valuable to families who need to cover short-term or emergency expenses until the next paycheck arrives. However, nearly one in five people do not have a credit file, and thus have no access to safe, affordable credit. People with poor credit (e.g., those with a subprime credit score or no credit file) have limited options for financial products and are charged the highest interest rates when they need to borrow money. This affects their economic success, because an inability to borrow hinders their ability to have money for emergencies, to save, to start a business, or to pursue opportunities like getting a higher-education degree or owning a home (Elliott and Lowitz 2018). Among the 27 percent of people in the credit system with subprime credit, 86 percent have an average of $1,360 in delinquent debt that would need to be repaid for them to achieve prime credit; this type of debt can take up a large portion of a person’s income. Furthermore, if people with subprime credit try to take out a loan, they only qualify for the loans with the highest interest rates (Elliott and Lowitz 2018).
  • The COVID-19 pandemic has illuminated many inequalities facing vulnerable populations. In 2020, people living in majority–Native American communities (i.e., where 60 percent or more of the population identifies as American Indian or Alaska Native) faced consistently high interest rates and levels of delinquent debt. Furthermore, 46.4 percent of those individuals had subprime credit, which is 2.5 times higher than in majority-white communities (Martinchek and Carther 2021). An analysis of credit bureau data found that in October 2020, Native American communities had the highest share of loans from alternative financial services (e.g., short-term unsecure loans such as payday loans) at 14.4 percent; the Black communities had 9.2 percent share; and the Hispanic and white communities had 6.5 percent and 4 percent share, respectively (Martinchek et al. 2022).
  • A report from the Stanford Center on Longevity on financial security and homeownership notes that the average net worth for individuals born in the early 1980s is less than $10,000 today, which significantly restricts their capacity to afford the down payment on a home. Despite increasingly strict lending regulations, debt burdens fall most strongly on less-educated and lower-income individuals. When comparing individuals at the age of 30 across generations (i.e., comparing those born from 1957 to 1964 with those born from 1980 to 1984), the mortgage-to-income ratio increased from 1.06 to 2.24 for those with less education and from 2.3 to 4.1 for those in the lowest income quartile (Stanford Center on Longevity 2018, 10).
  • Black and Hispanic borrowers are more likely to be rejected when they apply for a loan in the mortgage market than white borrowers; this is a trend that has not changed over the past 40 years. Furthermore, when approved, they are more likely to receive a high-cost mortgage (Quillian, Lee, and Honoré 2020). In 2015, the loan denial rates for Black and Hispanic prospective borrowers were 27.4 percent and 19.2 percent, respectively, compared with 10.9 percent for white prospective borrowers and 10.8 percent for Asian prospective borrowers. In the same year, mortgage rates were at 6 percent or higher for 23 percent of Black and 18 percent of Hispanic homeowners, compared with 13 percent of white and 6 percent of Asian homeowners (Desilver and Bialik 2017).

Promising Local Policy Interventions

Research from both Urban and others in the field suggests the following policies could help communities improve this predictor. These suggestions are not exhaustive, and communities should work with residents and leaders to identify solutions that are best suited to their local contexts.  

Mobility Metric(s) Used to Measure This Predictor

Share of adults with debt in collections

People with overdue debt typically have few assets or negative wealth.

View the full suite of metrics used to measure all the predictors in the Upward Mobility Framework.

Mobility Dimensions Engaged

  • Economic success
  • Power and autonomy