Financial Distress Differences Seen at the ZIP Code Level

August 08, 2019

U.S. households have seen an improvement in their balance sheets since 2010, at least at the aggregate level. But the recovery has not been the same for everyone. Taking a deeper dive into the data, Assistant Vice President and Economist Juan Sánchez and Research Associate Ryan Mather found that neighboring ZIP codes, even within the same city, often experience divergent outcomes defying the national trend.

In a recent Regional Economist article, Sanchez and Mather explained that analyzing changes in wealth, debt and financial distress by ZIP code offers a different perspective on household financial resilience. The research also showed that since 2015, housing wealth, debt and financial distress have been rising the fastest in the poorest ZIP codes, which increases their vulnerability to housing price downturns.

Measuring Wealth and Financial Distress

Sanchez and Mather used a dataset of household balance sheets at the ZIP code levelThe authors used a dataset that was prepared for a research paper by Sanchez and two coauthors. See Athreya, Kartik; Mustre-del-Río, José; and Sánchez, Juan M. “The Persistence of Financial Distress.” The Review of Financial Studies; Feb. 1, 2019. and examined whether the change since the beginning of the economic recovery in 2010 has been as positive as it seems at the aggregate level. “ZIP codes, being nothing more than a collection of individuals within certain geographical boundaries, are thus used to represent individuals with certain characteristics,” they explained.

The research considered the following components of net wealth:

  • Total debt
  • Housing wealth
  • Stocks and bonds

In addition, Sanchez and Mather measured households’ financial distress at the ZIP code level by looking at the percentage of people within a ZIP code that have reached at least 80% of their limit on bank-issued credit cards.

Distribution of Wealth Growth since 2010

The authors looked at two different periods of the economic recovery: 2010-15 and 2015-18. While both periods saw similarly robust growth in terms of net wealth (7.4% for the 2010-15 period and 6.2% for 2015-18), the composition of that growth was quite different, they pointed out.

From 2010 to 2015, financial wealth was the strongest component of growth (6.9%), and debt accumulation was very low (0.5%), they noted. Beginning in 2015, however, U.S. housing wealth posted the largest gains (6.1%) and brought with it faster debt accumulation as well (2.7%).

“Should house prices drop again, households may find themselves more highly leveraged and vulnerable than they were at the beginning of 2015,” the authors wrote.

Financial Distress by ZIP Code

Sanchez and Mather showed dispersion of these growth rates across ZIP codes. For example, from 2010 to 2015, ZIP codes at the 90th percentile in terms of debt accumulation saw their debt grow by 6.2% annually, well above the national average of 0.5%. The dispersion is even wider for the later period.

For the 2010-15 period, the research also showed that 10% of ZIP codes experienced declines in financial distress greater than 1.9 percentage points. At the other extreme, 10% of ZIP codes experienced increases in financial distress no less than 1.1 percentage points.

Sanchez and Mather noted that the difference here is more drastic in the later period, with the best-performing 10% of ZIP codes reducing financial distress by over 1.8 percentage points each year in the 2015-18 period and the worst-performing 10% of ZIP codes increasing financial distress by no less than 2.7 percentage points each year.

Example of Financial Distress Variation

Throughout the country, there are many examples of financial distress conditions that have diverged at the ZIP code level. The authors cited as an example the city of Eden Prairie, Minn., a suburb of Minneapolis. The city is composed of three mutually adjacent ZIP codes:

  • 55344 to the east
  • 55346 to the west
  • 55347 to the south

The eastern ZIP code experienced almost no change in net wealth from 2010 until 2015 but a slight increase in financial distress, Sanchez and Mather’s research showed, while the western and southern ZIP codes experienced sizable increases in net wealth and slight decreases in financial distress over the same period.

After these changes, the share of residents in all three ZIP codes in financial distress was nearly identical at about 10.6% in 2015, the authors found. During the period from 2015 until 2018, however, the eastern and southern ZIP codes each experienced increases in financial distress of about 6 percentage points, putting them near the national mean of 16.1% in 2018. By contrast, financial distress in the western ZIP code remained nearly unchanged over the same time period.

“Clearly, the recovery experiences of these three ZIP codes were very different, even though all of them are in the same city,” Sanchez and Mather wrote.


It seems fair to reconsider what the current distribution of households’ financial conditions means for financial stability, they said, given that there is a wide dispersion in measures of wealth growth across ZIP codes since 2010.

“If it is the case that growth has been concentrated in the hands of wealthy ZIP codes with low leverage, then the poor and high-leverage ZIP codes that are more affected by wealth shocks may still be vulnerable,” they noted. “What’s more, trends in less affluent groups are masked in nationally aggregated statistics by groups with more wealth.”

On almost every aggregate measure, the national recovery in household balance sheets since 2010 has been positive. Even the measure of financial distress, which increased nationally from 2015 until 2018, showed a net national decrease when compared against 2010, Sanchez and Mather said.

However, they added, underneath that rosy narrative of recovery are substantial differences at the level of ZIP codes, “and mixed messages on the resiliency of many households to face another recession.”

Notes and References

1 The authors used a dataset that was prepared for a research paper by Sanchez and two coauthors. See Athreya, Kartik; Mustre-del-Río, José; and Sánchez, Juan M. “The Persistence of Financial Distress.” The Review of Financial Studies; Feb. 1, 2019.

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