Prosperity Watch Issue 34, No. 1: Pervasive financial insecurity among NC households challenges economic mobility and opportunity

As North Carolina continues a fragile recovery from the Great Recession, many households across the state are not prepared to withstand an unexpected life event that would negatively impact their financial circumstances. The financial security and stability of North Carolina households ranks 46st among states, according to the 2014 Assets & Opportunity Scorecard produced by Center for Corporation for Enterprise Development (CFED). Financial insecurity can serve as a major barrier to economic opportunity and mobility, particularly for struggling families, and adversely impact the economic vitality of local communities.

The CFED scorecard assesses the health of households across various indicators – income levels, credit card debt, homeownership and foreclosure rates, and entrepreneurship, for example – and highlights troubling realities for the Tar Heel state. More than half (52 percent) of North Carolina households  do not have sufficient financial assets necessary to weather an unexpected life circumstance such as a sudden job loss, a medical emergency or another financial crisis that leads to a loss of stable income. Moreover, one in seven (14.3 percent) of these financially vulnerable households has zero or negative net worth – meaning no financial cushion is available to help these households weather a financial crisis or invest in their future.

North Carolina ranks among the bottom half of states on a range of CFED scorecard indicators for economic opportunity and financial security among households. The fragile financial circumstances threaten the well-being and long-term economic prospects for families, particularly children raised in households that experience constant bouts of financial insecurity. Disruptions in the lives of children due to financial setbacks can adversely affect their health and academic performance. Studies find that students from low-income families are much less likely to graduate from high school and go on to earn a college degree compared to students from affluent families. With an increasing number of jobs expected to require some level of postsecondary training, the pervasive nature of financial vulnerability among North Carolina households poses economic implications that threatens the state’s long-term economic prospects.

Public policy initiatives that help address financial insecurity among North Carolina households are highlighted in the CFED scorecard. Access to early education, adequate financial aid funding for college, a fair tax system, and adequate consumer protection laws are highlighted as ways to help strengthen the financial security and stability of struggling households. Actions taken by North Carolina legislative leaders, however, have rolled back a number of such policy initiatives. Replacing the state’s progressive income tax rate system with a flat tax rate, eliminating the state Earned Income Tax Credit as well as the Child and Dependent Care Tax Credit, and the weakening of consumer protection against short-term installment loans are among recent policy changes that will further challenge the ability of financially vulnerable North Carolinians to get ahead and build a more secure financial future for themselves and their families. A vibrant state economy requires healthy and vibrant local communities. This can be achieved by North Carolina recommitting and strengthening state-level policies that provide a hand up to individuals and families who need it the most.

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