Published on September 5, 2024 / Leer en español
In This Issue
This month we welcome back to CNE an old friend, Dr. Harold J. Toro. Harold is an experienced researcher, who has worked for two decades in academia, for NGOs, and as an advisor to think tanks and other entities focused on social policy and economic development. He is an expert on issues related to inequality and his work has been published in several peer-reviewed journals, such as the British Journal of Sociology, Social Currents, and Research in Social Stratification and Mobility. Harold earned a Ph.D. in sociology from the University of California, Berkeley and joins CNE as Research Director and Churchill G. Carey, Jr. Chair in Economic Development Research. The entire CNE team looks forward to working with Harold and sharing the results of his world-class research over the years to come.
In this issue, we highlight Harold’s most recent publication, An Overview of Factors Tied to the Financial Capability of Adults in Puerto Rico, an analysis of a new data set collected in 2021 about the financial capability of individuals and households in Puerto Rico coauthored with Dr. Olivia Valdés. That study was part of the National Financial Capability Study (NFCS), a triennial survey that the Financial Industry Regulatory Authority (FINRA) Foundation has conducted since 2009. In Puerto Rico, there is a dearth of publicly available detailed information about household financial welfare. This information gap adversely affects the design and evaluation of social policies in Puerto Rico and is fertile soil for the proliferation of all sorts of myths and stereotypes regarding household income, consumption, indebtedness, patterns of savings, investment, wealth, and asset accumulation.
Studies such as the NFCS allow us to analyze household financial welfare as a long-term dynamic process and, in the words of Professor Michael Sherraden, to identify which factors, other than income and consumption, yield positive effects at the household level. We hope that the FINRA Foundation study will continue to be regularly updated in the future and that its findings are put to good use by academics, policymakers, and community-based organizations in Puerto Rico.
–Sergio M. Marxuach, Editor-in-Chief
Insights + Analysis from CNE
The FINRA Foundation Study of Financial Capability of Households in Puerto Rico
By Harold J. Toro, Ph.D. – Research Director & Churchill G. Carey, Jr. Chair in Economic Development Research
When I first joined the Center for a New Economy (CNE) in 2008, one of my first tasks was to analyze data from the Puerto Rico Survey of Consumer Finances (PRSCF). The PRSCF was a collaboration between CNE and the Federal Reserve of New York to study the financial situation of households in Puerto Rico. Largely modeled on the Federal Reserve’s Survey of Consumer Finances, the PRSCF collected information in 2007-08 on a representative sample of 2,400 households. To my knowledge, this was the first research of this type ever conducted in Puerto Rico. Based on the data, I wrote the Top-line Report on the PRSCF, which was published in 2013.
Fast forward to now, sixteen years later, and my return to CNE has coincided with the release by the FINRA Investor Education Foundation (FINRA Foundation) of a research brief on the same theme, co-authored by me and my colleague, Olivia Valdés at the FINRA Foundation. My previous report on the PRSCF is the reason why the FINRA Foundation contacted me to be the principal investigator in the analysis of the data from the Puerto Rico National Financial Capability Study Survey (PR-NFCS). The brief is titled, “An Overview of Factors Tied to the Financial Capability of Adults in Puerto Rico” and in it, we report the findings from a survey carried out between October and December of 2021 based on a sample of 1,001 individuals 18 years or older who resided in Puerto Rico. The brief is oriented to an audience without technical expertise on the topic of financial behavior.
The Puerto Rico study is a novel component of the National Financial Capability Study (NFCS), a triennial survey the FINRA Foundation has conducted since 2009 to gauge the financial capability of those across the United States. The PR-NFCS is a unique source of information on how families and individuals in Puerto Rico make ends meet and plan and manage their finances, including debt-related behavior, and wealth-building efforts. The survey delved deeply into how individuals and households view and experience their financial situation by asking about unexpected economic shocks, unexpected drops in income, and the need to draw down savings and retirement accounts to cover emergencies.[1] Respondents were also asked if they overspent and if they were satisfied with their current financial situation. Data collected on socio-demographic characteristics and intergenerational wealth transfers allow analyzing how respondents’ views vary by income, education, and social background.
Our analysis revealed a high prevalence of economic insecurity. Across households, 47% of respondents indicated being financially fragile, 48% indicated experiencing an unexpected drop in income in 2021, and 39% indicated spending more than their monthly income. Consistent with the high rate of financial fragility, 41% of adults reported having set aside funds for emergencies that could cover 3 months of expenses (emergency savings). Households also face challenges in calibrating short-term financial priorities with long-term financial goals. For example, while 85% of respondents indicated having either a savings or a checking account (not reported in the Brief), less than half (35%) reported having a retirement account. In 2021, approximately, 45% of households who owned a home had a mortgage on the main residence, a figure consistent with the centrality of home ownership for asset-building in Puerto Rico. Across most of these measures, households in Puerto Rico are generally worse off than U.S. households.
We find that differences in social and demographic characteristics underscore the importance of educational attainment and inter-generational wealth transfers for the financial situation of households. Close to 60% of respondents who had a college education or higher had a retirement account, 51% of them reported having emergency savings, and approximately two-thirds of them reported owning their home. Relatedly, for those who reported receiving an intergenerational wealth transfer of $10,000 or more, 47% had retirement accounts, 45% reported having emergency savings, and 61% reported owning their home. Other factors such as age, gender, and household income are closely linked to financial security and the ability to make ends meet.
A project of this scope on the topic of household finances in Puerto Rico has not been undertaken since the PRSCF. The broader impetus behind the 2021 PR-NFCS was to comprehensively understand the financial experiences of people in Puerto Rico, particularly in light of the economic challenges that have impacted families over the past decade. Our findings contribute to this objective but also highlight the need 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. The PR-NFCS is an auspicious beginning in this direction.
[1] These topics were not the focus of the PRSCF of 2008, which mostly collected information on holdings and dollar amounts of income, financial and of non-financial assets, and types of debt. Additional questions collected information on reasons for saving or remaining unbanked.
Conversations on the U.S. election and its implications for Europe
CNE recently collaborated with Fedea, a prestigious think tank in Spain, to co-host an event in Madrid featuring distinguished experts from the Real Instituto Elcano and the IE School of Global and Public Affairs.
This election year will define the trajectory of many nations globally, with an unprecedented number of voters – nearly half of the total world population – expected to hit the polls. The outcome of these elections, especially the consequential U.S. elections in November, will likely shape international relations and policies for years to come.
Against this backdrop, the event centered on the U.S. elections and their global implications, including their future role in international organizations and its stance on critical issues such as national defense, international trade, immigration policy, civil rights, freedom of the press, rule of law, and fiscal policies impacting the world’s largest economy.
SAVE THE DATE!
Join us in October 2025 as CNE teams up with the
Tobin Center for Economic Policy at Yale University
to celebrate the 50th anniversary of the Tobin Report.
This conference offers a unique opportunity to revisit
past recommendations, examine the current landscape,
and envision the future.