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St. Louis Fed's New 'Financial Health Scorecard' Can Predict Personal Wealth


ST. LOUIS—New analysis by the Federal Reserve Bank of St. Louis shows that five simple questions may predict personal financial health and wealth surprisingly well.  

Authors William Emmons and Bryan Noeth explain their “financial health scorecard” in the latest issue of In the Balance, a publication of the St. Louis Fed.

The authors examined responses to five of the questions that survey participants answered in the Federal Reserve Board’s Survey of Consumer Finances between 1992 and 2013, as well as the respondents’ reported wealth. To determine correlation, they grouped respondents by the demographics of age, education, and race and ethnicity, forming 48 non-overlapping groups. Their method showed a very strong relationship between their simple measure of a group’s financial health and its actual wealth.

The scorecard:

  • Did you save any money last year?
  • Did you miss any payments on any obligations in the past year?
  • Did you have a balance on your credit card after the last payment was due?
  • Including all of your assets, was more than 10 percent of the value in liquid assets?
  • Is your total debt service (principal and interest) less than 40 percent of your income?

Combining data for 1992-2013, the authors found that a group’s average score on the scorecard and the median among group members’ actual level of wealth were highly correlated, measuring 0.67 out of a possible 1.00.

The authors noted several patterns among the demographically defined groups. Perhaps surprisingly, educational attainment was not as strongly associated with financial health and wealth as either age or race and ethnicity. Older families generally had greater financial health and wealth than younger and middle-aged families for any given race, ethnicity or level of educational attainment. Meanwhile, non-Hispanic white and Asian families typically had greater financial health and wealth than Hispanic and African-American families for any given age or level of educational attainment.

To be sure, the authors note, they cannot say which way causation runs: from financial health to wealth or vice versa. Other factors likely also play a role in creating the very strong correlation, such as life-cycle effects and unique challenges facing historically disadvantaged minorities. The authors outlined these possibilities in the publication.

“Whatever the causal mechanisms, our simple financial health scorecard provides a surprisingly accurate prediction of the median wealth of groups of families defined by their age, educational attainment, and race or ethnicity,” they wrote.

Emmons is senior economic adviser and Noeth is policy analyst at the Center for Household Financial Stability at the St. Louis Fed. For more information on the Center and its work, visit