FINRA study: Puerto Rico population experiencing ‘financial fragility’
The findings highlight Puerto Rican households’ ability to make ends meet, manage debt, build wealth and plan for the future.
A report by the Financial Industry Regulatory Authority Investor Education Foundation (FINRA Foundation) shows that 47% of people interviewed in Puerto Rico reported being in a situation of financial fragility, not confident they could absorb an unexpected $2,000 expense. By comparison, 30% of stateside respondents shared the same concern.
The findings also show that adults in Puerto Rico are more likely to struggle with daily expenses and are less likely to have savings or investments. The report highlights significant variation in financial capability by education, income and receipt of intergenerational wealth transfers.
Titled “An Overview of Factors Tied to the Financial Capability of Adults in Puerto Rico,” the report was co-authored by Harold J. Toro, research director at the Center for a New Economy (CNE), and Olivia Valdés, senior researcher at the FINRA Foundation.
It synthesizes findings based on data collected in 2021 from the Puerto Rico extension of the National Financial Capability Study (NFCS), a triennial survey by the FINRA Foundation.
“The report is an auspicious beginning for urgently needed research to deepen our understanding of the interplay of generational dynamics, education and asset-building in Puerto Rico — themes at the core of policy interest and concern with social mobility and economic prosperity,” said Toro.
The main motivation behind the survey was to gain an in-depth understanding of the financial experiences of people in Puerto Rico as individuals and households attempt to make ends meet, manage debt, build wealth and plan, particularly considering the economic challenges families have faced over the past decade, the think tank explained.
“Since it first launched, the National Financial Capability Study has provided important insights into the financial capability of adults across the United States,” said Gerri Walsh, president of the FINRA Foundation.
“In 2021, we expanded the scope of the study to include Puerto Rico. The lack of information on Puerto Rican households’ financial capability amid the challenging economic events that have transpired over the last several years served as an impetus to explore the financial experiences of Puerto Ricans today. We also plan to examine how their experiences evolve over the coming years,” Walsh added.
Toro and Valdés conclude that “those who have a college degree and who live in higher-income households are better able to make ends meet and engage in planning and wealth-building opportunities. Financial capability also differs by age.”
Among those aged 55 or older, the likelihood of facing financial fragility and incurring expenses higher than their income is lower than among adults younger than 55. The findings show that 53% of women are financially fragile compared to 40% of men.
The authors added that “the findings provide new and important insights on the financial challenges of people in Puerto Rico. While the general picture is consistent with well-known characteristics of Puerto Rico’s economy, such as limited labor market opportunities and income disparities, these analyses provide individual and household-level insights that can help policymakers, educators and practitioners better identify challenges and provide opportunities to improve financial capability.”
The FINRA Foundation sought out Toro to co-author the report, given his experience exploring the economic and financial landscape of Puerto Rico and due to his work as the author of CNE’s Puerto Rico Survey of Consumer Finances, a study based on data from a representative sample of households collected in 2007-2008 to examine income sources, financial and nonfinancial assets and household indebtedness.
“The study was the result of a collaborative effort between CNE and the Federal Reserve Bank of New York. Nothing of this magnitude had been undertaken since then until now,” said Toro.
