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COLUMBUS, Ohio -- Although minorities and people with less education are more likely than others to experience money problems, an Ohio State University study suggests other factors are responsible for financial insolvency.

The study found that even after taking into account differences in income, older people and married couples were less likely to be insolvent than younger people or those who were separated, widowed, divorced or single.

Race, educational level and household size did not turn out to be significant factors.

"Looked at by themselves, race and education do seem to play a role, but when you control for other factors, they don't," said Sherman Hanna, professor of family resource management at Ohio State.

"For example, African Americans are less likely to live in married-couple households, and married couples are less likely to be insolvent."

Hanna conducted the study with doctoral student Sharon DeVaney, who is now an assistant

professor in consumer sciences

and retailing at Purdue University. Their findings were published in a recent issue of the Journal of Consumer Studies and Home Economics.

The researchers used data collected in 1983 and 1986 from 1,934 households for the Federal Reserve System's Survey of Consumer Finances. For this study, the researchers converted all dollars to 1985 values to take inflation into account.

The researchers found that in 1983, 9 percent of the households surveyed fit their definition of "insolvent." In 1986, the proportion decreased to 6 percent. The decrease makes sense in light of the finding that households with older members are less likely to be insolvent, because the same households were interviewed in both years.

The study defined "insolvency" as having a net worth less than one month's income. Net worth is a person's total assets minus their total debts. Assets include cash, investments, insurance and pension funds plus the market value of a home, property, car and business.

While many people who meet this definition may never declare bankruptcy -- fewer than 1 percent of American households file for bankruptcy per year, Hanna said -- they do have very little in reserve and would not have anything to fall back on in case of an emergency.

"These are the people who could be one paycheck from living on the street," Hanna said.

Details of the findings include:

_ In 1983, 30-year-olds with incomes under $20,000 who were otherwise average had a predicted insolvency rate of 38 percent, compared to 18 percent for otherwise similar 60-year-olds. In 1986, 37 percent of 30-year-olds with an income of less than $15,000 were insolvent, while only 22 percent of the 60-year-olds with that income were insolvent. "It's really an interaction of income and age," Hanna said. "Generally, if you had a high income, you wouldn't be insolvent no matter what your age. If your income is in the mid-range, you're less likely to be insolvent as you age. Lower-income groups make some progress as they age, but they're more likely to be insolvent than other groups."

Hanna speculates that home ownership may be one reason that older people were less likely to be insolvent than younger people. As people build equity in their homes -- the largest single investment that most Americans make -- the size of their overall debt decreases. That makes them less likely to be at risk for insolvency, he said.

_ In both years, being married with children was associated with a 5 percent insolvency rate, the lowest of any group. (The researchers included unmarried couples who lived together as partners in the married category.)

_ In both years, single parents were more likely to be insolvent. However, the rate doubled from 12.5 percent to 25 percent when the parent's marital status was "separated" rather than divorced, widowed or never married. That could be because of all the expenses associated with legal proceedings during separation, and with setting up a new household, Hanna said.


Contact: Sherman Hanna, (614) 292-4584

Written by Martha Carroll