At a Glance: Financial Capability in Louisiana

The findings from FINRA’s US Financial Capability Challenge show that:

  • 63% of Louisianans have difficulty covering expenses and paying bills;
  • 37% have experienced a large unexpected drop in income within the past year;
  • 20% spend more than their income;
  • 31% have been late on their mortgage payments;
  • 71% have not set aside money for their children’s college education;
  • 61% do not have emergency funds;
  • 30% have used one or more non-traditional lending sources in the past 5 years such as payday loans, pawn shops, and rent-to-own stores; and
  • 13% of Louisianans are considered “unbanked”, having no accounts at mainstream financial institutions such as banks or credit unions.

Financial capability of adults in Louisiana can be measured by focusing on four key components:

Making Ends Meet.  20% of individuals reported that over the past year, their household spent more than their income.   Individuals who report spending more than their household income (not including the purchase of a new home, car or other big investment) are not saving.

Individuals who spend about the same as their income are breaking even.  Only those who spend less than their

household income are able to save. Individuals who are not balancing monthly income and expenses may find themselves struggling to make ends meet.

Planning Ahead.61% of individuals lack a “rainy day” fund to cover expenses for three months, in case of emergencies such as sickness, job loss or economic downturn. Individuals who have a “rainy day” fund demonstrate that they are planning ahead for their financial future. Those who lack a “rainy day” fund, however, do not have money set aside to cover expenses for three months, in case of emergencies such as sickness, job loss or economic downturn.

Individuals without this emergency savings lack a buffer against unexpected financial shocks, threatening their personal financial stability, as well as decreasing stability of the economy as a whole.

Managing Financial Products. 30% of individuals reported using one or more non-bank borrowing methods in the past five years. Numerous Americans have engaged in non-bank borrowing within the past five years, such as taking out an auto title loan or a payday loan, getting an advance on a tax refund or using a pawn shop or rent-to-own store.

Non-bank borrowing methods are likely to come with high interest rates, and often attract individuals with poor credit histories, lack of access to more traditional sources of credit, or both. Sound borrowing practices and management of financial products are crucial to financial capability.