Puerto Rico's Financial Struggle: A New Study

The Financial Landscape of Puerto Rico

A recent study, the National Financial Capability Study, has shed light on the financial challenges faced by individuals in Puerto Rico following the economic turmoil that began with the Great Recession. The study, which was conducted in 2021, revealed a concerning picture of financial fragility and limited wealth building amongst Puerto Rican adults.

The study highlighted that nearly half (47%) of Puerto Rican adults reported being financially fragile, a significantly higher rate than the 30% observed on the US mainland.

This financial fragility was evident in a lack of confidence in their ability to handle an unexpected expense of $2,000.

Those most vulnerable to financial insecurity included younger adults (18-29), women, those with annual incomes below $25,000, and individuals without a college degree.

Financial Insecurity and Expenses in Puerto Rico

The study delved deeper into the specific financial challenges faced by Puerto Ricans. Many struggle to manage their daily expenses, with a staggering 39% reporting spending more than their monthly income, a rate more than twice as high as the US mainland.

This financial strain is compounded by limited access to emergency savings, with only 41% of Puerto Rican adults having emergency savings, compared to 53% on the mainland.

The study found that while Puerto Ricans had lower levels of student debt, likely due to lower college costs, they also had fewer retirement accounts (35% vs. 57% on the mainland).

The Roots of Puerto Rico's Financial Crisis

The study's findings are consistent with the well-known characteristics of the Puerto Rican economy, including limited job opportunities, stagnant wages, and income disparities. These economic challenges have persisted since the Great Recession and have been exacerbated by a series of crises, including the Puerto Rican financial crisis and a string of natural disasters.

In 2014, Puerto Rico's general obligation bonds were downgraded to noninvestment status, leading to a default on debt payments the following year.

The island's public debt and unfunded pension liabilities exceeded $120 billion, prompting a federally imposed oversight board to manage the largest public debt restructuring in US history.

This restructuring has resulted in severe austerity measures, including layoffs of public workers and cuts to healthcare and education budgets.

The impact of Hurricane Maria in 2017, a series of earthquakes in 2020, and the COVID-19 pandemic have further compounded the economic hardship faced by Puerto Ricans, leading to a significant outmigration of residents to the US mainland.

The Impact of Intergenerational Wealth Transfers

The study also explored the role of intergenerational wealth transfers in mitigating financial fragility in Puerto Rico. Interestingly, it found that those who expected or had received intergenerational wealth transfers of at least $10,000 exhibited lower rates of financial fragility. This suggests that access to inherited wealth can play a crucial role in financial stability for some Puerto Rican families.

The Importance of Financial Literacy

The National Financial Capability Study underscores the importance of financial education and access to resources to help individuals build financial security. The report calls for increased efforts to promote financial literacy in Puerto Rico, particularly among vulnerable populations. This includes providing access to financial counseling, educational resources, and support programs designed to enhance financial capability and empower individuals to navigate their financial futures.

The Way Forward for Puerto Rico's Economy