Wednesday, March 30, 2005

Do Mormons File More Bankruptcies?

Michael Stastny at Mahalanobis has an interesting post about Utah’s high bankruptcy rate. Several contributors added some interesting responses. The main thesis is to question why so many Mormons in Utah are declaring bankruptcy despite the church’s teachings on provident living and avoiding debt. This same thesis is echoed by financial expert Richard Halverson in a recent article in Meridian Magazine, a publication aimed chiefly at mainstream Mormons.

The thinking goes something like this. Utah has the highest rate of bankruptcy in the nation at about double the national average. Most Utahans (70%) belong to the LDS Church. Therefore, Mormons are filing bankruptcy at a higher rate than the national average. In the case of some Mahalanobis comments, a further conclusion seems to be that this means that there must be something wrong with the LDS Church when it comes to personal finances. These deductions may seem to make sense, but one must be careful in drawing conclusions from broad data that may turn out to be only casually linked.

Utah economist Dr. Kelly Matthews says that the people that pay a full tithing are not the ones that are filing bankruptcy. Moreover, he says that a high number of Utah’s Chapter 7 filers first file for Chapter 13 in an attempt to reorganize, but eventually file for Chapter 7 liquidation when the reorganization doesn’t work out. He says that this percentage is far higher than any other state, with the result that the number of bankruptcies are much higher than the number of filers. (This was from his commentary on the Doug Wright Show on KSL Radio several months ago – unfortunately I could not get a link to the transcript).

This seems to indicate that a higher number of Utah bankruptcy filers exhibit somewhat higher morals in that they first try to fix the problem. It also indicates that fully participating members of the LDS Church are not the ones contributing to the high bankruptcy rate.

A recent article in the Deseret News cites Christian E. Weller, a senior economist for the Center for American Progress in concluding that, “Utah's high [bankruptcy] rate can be traced in part to lower-than-average per capita disposable income levels. In 2003, Utah was the fourth-lowest state in per capita disposable income at $12,392.” This is corroborated by a study done by Drs. Jean Lown and Barbara Lowe of the University of Utah. Dr. Lown stated in an article in the Salt Lake Weekly that Utahans “don’t so much have a lot of debt, just a lot of debt in relationship to income.”

This same article adds the following to the list of problems for Utah households: larger than average families, larger than average houses (to accommodate the larger families), and more cars per household (to transport those families). One might conclude, therefore, that the church’s emphasis on not limiting family size lends to the high bankruptcy rate. A Deseret News article last summer alluded to this link.

The Salt Lake Weekly article cited above explored the link between the LDS Church and bankruptcy rates in Utah. Paul Godfrey, a professor of ethics at Brigham Young University is quoted as saying, “There is no smoking gun as to why so many people are filing.” However, he goes on to say:
It’s clear the LDS Church influence plays some kind of role in bankruptcy. I had students look at different religions. The LDS Church is the only one that talks about financial literacy from the pulpit. But there tends to be some weird cultural values that may encourage people to engage in riskier financial transactions.
The article says that Godfrey “describes these as informal myths—beliefs that, though neither taught nor encouraged by the church, form among some members. Blind faith, in a sense.” The article suggests that belief in these myths can lead to gullibility (or at least being overly trusting) and accumulating possessions in an attempt to demonstrate spiritual worthiness. However, the article admits having no empirical evidence to back this up.

What I take from all of this is that:
  • Utah’s high bankruptcy rate is artificially inflated somewhat by those that first attempt to take responsibility for their problems before giving up.

  • Most bankruptcies in Utah are filed by people that choose not to fully participate in the LDS Church.

  • Some members of the LDS Church have some strange financial ideas based on Mormon folklore rather than on actual LDS doctrine. Perhaps this is more common among those that don’t fully participate.

  • Given the below average household income, larger than average family size may stretch some families to the point of default on obligations when unusual financial events occur.

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