Wednesday, April 19, 2006

Does Tithing Cause Bankruptcy?

Here we go again perpetuating the myth that the tithing required of LDS Church members contributes to Utah’s high bankruptcy rate. Dave Anderton writes in an article in yesterday’s Deseret News, “…the reasons [for Utah’s high bankruptcy rate] extend to larger family size, higher charitable contributions and lower-than-average per-capita income levels.”

Utah has actually dropped from the highest bankruptcy rate in the nation to third place. Big deal. It looks more like this is due to Indiana’s and Ohio’s economic difficulties (manufacturing downturns) and Utah’s booming economy than due to a sudden surge in our citizens’ fiscal responsibility. 2005 bankruptcy numbers were somewhat skewed, since many filed to take advantage of old consumer friendly laws before new laws went into effect. Still, it’s clear that Utah still has a major problem.

Last year I wrote about this issue here. The unnamed economists cited in Anderton’s article (although I have heard local economists—even ones from BYU—repeat these things with my own ears) appear to be making faulty connections when they claim that higher than average charitable donations are a significant factor in Utah’s higher than average bankruptcy rate. The implication is that people get into financial trouble partially because they are LDS and pay tithing.

Let’s make this quite clear. No one can cite any empirical evidence to back this up. While Mormons certainly do file bankruptcies, it’s not the full tithepayers (people that pay 10% of their income annually to the church) that are filing. After studying the numbers, I concluded in last year’s post that the following things are known about Utah’s high bankruptcy rate:
  • 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.
The idea that the higher than average charitable donation rate contributes to Utah’s high bankruptcy rate is one of those conventional wisdom things that is not borne out by the facts. If anything, people that generously go beyond tithing to pay fast offerings help some church members that are on the edge to avoid bankruptcy. In fact, I think an argument could be made that paying a full tithing can help protect people from bankruptcy, as this practice has a tendency to instill a certain level of responsibility in financial decision making. (Of course, I am only making these claims based on anecdotal experiences rather than empirical evidence—using the same method that I am criticizing.)

The Standard Examiner editors have it right when they explain here how to avoid bankruptcy:
“Don't be tempted into using high-interest-rate credit cards for anything but an absolute emergency, live in a home or apartment you can afford, drive a car that's economical to own and operate, and generally live within your means -- which means spending on a level that allows you to save money from month to month, as well.”
Now, if we can just get Utah citizens to go along with that.


That One Guy said...
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That One Guy said...

speaking from an anecdotal perspective, I would say that many factors play into that statistic... large families, charitable giving, but most noteably, the propensity of a higher percentage of individuals in this state to be "self-employed".

I have a hard time swallowing the assertion that those LDS who do file for BK are not necessarily the "active" ones. It's the self-employed ones, at least anecdotally in my experience. I see many, being in the mortgage industry.

That One Guy said...

I dunno, Reach, I have a hard time with the idea that active, full tithe-paying LDS members are somehow not the ones that are filing for BK... I quote your earlier post from last year:

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.

Is it just the non tithe-payers who subscribe to these "myths"? I don't think the myths discriminate. I think the BK filings are not discrimiting either for or against active full tithe-paying members of the Church. There are a couple of interesting attitudes in this state: First - people who can't find/keep/hold a job are simply filing an LLC and doing "handiman" work, or whatever, and 95% of those are NOT making it past the two year mark successfully. And Second - kids in this state, for some unknown reason, feel the need to have, RIGHT NOW, all the things their parents have worked 20 hard years to accumulate: a NICE house, nice cars, assets, THINGS. Credit is EASY here, how many car commercials have you heard TODAY, that say, "we are accepting ALL credit applications for instant approvals"? I heard that on my way to the office today. I would rather hear, "you can get a nice Volvo if you have had a job for two years, and can demonstrate a willingness and capacity to pay". Instead, it's "get everything you want, today, right now. Don't wait. You're in college? That's okay, we'll bend over backwards to sell you a car." Gimme a break.

I just can't swallow the idea that the full-tithe payers are the ones NOT filing. I just can't get on board with that one.

Scott Hinrichs said...

One Guy, the only empirical evidence I have on the ratio of full tithe payers not filing bankruptcy is a comment Dr. Kelly Matthews made on the Doug Wright show last spring. I suppose I could contact Dr. Matthews for more specific information.

On the anecdotal side, I have been in positions to know both the tithing and financial statuses of a number of people in the area where I live. I have sadly seen some people file for bankruptcy, even some that are quite active in the LDS Church. But they haven't been full tithe payers. In fact, most of them rarely made any financial donation at all. That may be due to long-term financial problems. Most of them were simply living beyond their means all the time or else were just awful at money management.

I hadn't thought about the self employment angle. You make a very good point on that. I would love to see someone do a study on this correlation.

You also make a very good point about young kids wanting everything right now. I know from a friend that runs a loan business that the clients he has that are in the biggest trouble are younger families with big houses and new cars. He says he can guage financial trouble in our area according to the extravagance of the neighborhood. A middle age friend that runs an excavating business is constantly amazed at the rock work he gets contracted to do at new homes for 20-somethings. He says that he couldn't afford to do it in his own yard, so he wonders how they can afford it.

On the goofy spiritual-financial ideas, I think I explored that somewhat in last year's post. I have seen these attitudes first hand. You know, "I'm trying to be righteous, so I deserve to be blessed with all of this world's stuff that I want." You may be right to challenge my assumption that it is more prevalent among less active Mormons than among active Mormons. I have only anecdotal experience in this arena. All I know is that I have seen it displayed often among Mormon friends that end up in dire financial straights. It was nice to read what Dr. Godfrey had to say about his study, but I'd like to see the study itself.

That One Guy said...

Yes, I run a mortgage brokerage here, and we work almost exlcusively for builders - I'm ASTONISHED weekly at what walks through our door, looking for a $200,000 house. Utterly amazed.

That One Guy said...

I guess what I am saying, overall, is that paying a full tithe doesn't immunize ANYONE from financial difficulties in the future, and some assert that it does indeed contribute to the negative, others submit an opinion to the positive, but that is not an idea I totally subscribe too all the way either. I've seen things go both ways for all types of people, and I really would challenge an assertion that there is a correlation (a correlation in either direction, actually).

Although I'm not a member of "the predominant religion", I used to be, and I've held lots of high-up positions (you'd be surprised if I told you...) that made me privvy to lots of sitations, and that is where I bring my anecdotal experience into play on this one.

That One Guy said...

Good discussion, I appreciate your dialog, and candor. Your thoughts are well-rounded and thought out. Too bad many others around here aren't "thinkers". We have too many "sheeple" in this state.

Besides that, you write well too, and I do so appreciate that - an art lost in time and poor educational practices.


I go back to Bob Aagard's thought that regardless of public speech to the contrary, more people listen to Gayle Ruzicka than Gordon Hinckley.

Cliffs Blogger Profile said...

I used to run an innovative gift company/national distributor.

I was always amazed by the number of get rich quick schemes people brought to us.

I'll never forget the guy who threw his life savings into a talking belt that screamed at you when it got too tight. I saw stories like that every week. Always LDS.

At first I thought it was vestiges of the wild west gold strike mentality.

Then through personal relationships, I learned that the faithful felt more comfortable taking on more debt, because the would be "blessed".

I'm most curious about the idea that "less than active" or non-full tithe payers are the coorolate. What are you suggesting? Pay on gross, no bankruptcy, pass less=punishment?

I'm not clear.

Great blog Reach!

Scott Hinrichs said...

I think we’re getting into more anecdotal stuff than empirical evidence in this discussion, not that that’s all bad, but it gets away from my main point. My intention was to assert that we have no empirical evidence that paying tithing contributes to Utah’s high bankruptcy rate, but that each year when the bankruptcy topic heats up this correlation is reported as fact. I would very much like to see an empirical study that explores the correlation, while controlling for other factors.

LDS Church leaders promote the concept that full payment of tithing helps curb appetites and helps educate the individual’s financial decision making. I subscribe to this, as I have seen it work in my life. But it is not the only (or perhaps even a major) factor in all financial decision making. The application of this principle obviously varies from individual to individual. Detractors regularly suggest that the tithing requirement is simply a ploy to enrich the church’s corporate coffers at the expense of its members. Everyone is welcome to his/her individual views on this matter.

On the gullibility issue, we have empirical evidence that it is only slightly more prevalent in Utah than in the nation at large. But contrary to popular opinion, Utah does not lead the nation in this category (sorry, I couldn’t find a link to the study). We also have empirical evidence that financial gullibility is more prevalent among Utah Mormons than in the population at large. But studies as to the root cause for this have been inconclusive. The strongest factor reported in these studies is that Utah Mormons tend to have a low trust threshold, especially when the scheme comes from someone the see as a fellow believer.

My first exposure to this came in my late teenage and early young adult years when a very dynamic and likable Mormon fellow by the name of Grant Affleck ran around predominantly LDS communities hawking a get rich quick scheme called AFCO. This guy would show pictures of himself with the Osmonds and with church general authorities, and he would kneel down and pray with people to establish a trust level. His plan got people to take out second mortgages on their homes to fund an investment that he said would not only make the payments on the mortgage, but would also earn additional income. Some managers at Zion’s Bank colluded with the scheme. It was a Ponzi pyramid scheme where Affleck used the money from later investors to pay off early investors to make it look good and to get testimonials. Of course, he also generously padded his own pocketbook. It shouldn’t take a rocket scientist to see that this scheme could not actually work, but over 1000 people (mostly Mormons) bought into it. Some friends of our family got suckered into it. The pyramid eventually hit its logical limit and collapsed. Mr. Affleck went to prison and some people from Zion’s Bank were disciplined as well. A few people lost their homes. A lot of people ended up having to pay their second mortgages without getting anything in return other than a costly educational experience.

I was a teenager when the AFCO scheme was very hot. My father took me aside one day and told me that he wanted me to always remember that whenever anybody brought any kind of financial opportunity purporting to produce a monetary or property return while interlacing the promotion with religion or religious standing, I was to run away in the opposite direction as fast and as far as I could, regardless of how wonderful the pitch sounded. Dad’s words seemed prophetic a few years later when AFCO collapsed. His advice has served me well. But it’s obvious that a significant group of Mormons either don’t know about or refuse to subscribe to this advice.

That One Guy said...

I guess my bottom line here is:

Does Tithing Cause Bankruptcy? No.
Does Tithing Protect You Against Bankruptcy? No.

Just my $0.02.

Scott Hinrichs said...

I can't say that you're wrong. The whole concept with tithing is that its blessings are spiritual. There *might* be some positive side effects beyond that, but these are most likely individually rather than generally applied.

Jettboy said...

I guess the Saints never learned anything from the Kirtland Safety Society bank fiasco. Not to mention, exactly how many people (faithful though they may be) don't listen to the councel of LDS prophets and apostles. You can say that LDS people are gullable and materialistic - and critics basically imply this - but its not from any teachings.