According to a new report from CreditCards.com, several states stand out as the best and the worst at money management. Perhaps the most surprising is that even low-income areas can outperform wealthy ones when it comes to being smart with money, and high-income areas under-performed states with less income.
Is your state on the ‘worst’ or ‘best’ list?
CreditCards.com analyzed income and credit report data to determine which states were the best and worst when it comes to managing money and credit. Montana topped the list as the state with the best money managers, while Maryland residents, according to the study, were the worst.
Matt Schulz, CreditCards.com’s senior industry analyst says, ‘A higher income doesn’t always translate to a higher credit score. Good financial habits, like paying your bills on time and keeping your debts low, are what build a solid credit score, not how much money you earn,’ he said.
And how true this is! Though Maryland was the lowest scoring state, it had the second highest median household income of $69,071, while Montana residents’ was just $44,938. The national average was $53,657.
But to Maryland’s credit, it also has a relatively high cost of living, ranking 10th most expensive in the nation.
‘Maryland does have some of the highest incomes in the country, but with that comes a higher cost of living as well, depending where in the state you are,’ said Nancy McCrea, research and information director at the state Department of Commerce.
The top and bottom five
Following Montana, the other four states to make the top five list were South Dakota, North Dakota, Maine and Vermont, while Washington D.C. was the second worst state, followed by Alaska, Virginia and Texas.
So what were some of the contributing factors to the high and low scores?
Factors for poor performing states
In some states, there were factors other than individuals’ money habits. For example, two of the bottom performers, Alaska and Texas, have economies that are suffering because they are driven by energy production. Since energy prices began to plummet in the summer of 2014, higher credit card debt and lower credit scores might partially be a response to the economic slowdown.
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Michael Sullivan, director for education at credit counseling service Take Charge America, said, ‘Alaska is basically in a depression right now. Say you work in the oil fields; you’re used to working 60 hours a week, now you’re working 30 hours a week. That does happen — there isn’t a whole lot you can do about it,’ he said. Sullivan’s credit counseling service helps people in Alaska and Texas in addition to other states.
Though North Dakota’s economy has boomed with shale oil development and has been able to avert a rise in unemployment so far, it may not be able to keep its 2.7% unemployment rate if oil stays below $50 a barrel.
‘It’s wise to have savings to cushion the hard times, especially in a volatile industry,’ said Sullivan. But, ‘…none of us is immune to the big picture,’ he said.
Factors for high performing states
What do the top money-managing states have in common?
One pronounced attribute was a mostly rural demographic. Montana’s hard-working, self-sufficient farmers might be known for their frugality, but this stereotype isn’t too far from the truth. One theory for better money management in rural areas is that there isn’t as much pressure to ‘keep up with the Joneses.’
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Other states with highly dense populations, such as California, New Jersey and New York, also had good scores. One notable difference in these states is that credit card utilization is below the 30% U.S. average, while in the worst state of Maryland it was 32%. Credit card utilization is the amount you owe on your credit cards compared to the cards’ limits, and this ratio has a big impact on your credit score.
Why residents of the Big Sky Country were the best money managers
Since Montana had an income much less than that of the national average, what made it the best state?
‘We do have a population that is pretty conservative about their personal finances,’ said John Rogers, chief business development officer at the Montana Office of Economic Development. ‘I think it’s a cultural thing… also probably a more rural thing,’ he said.
In addition, a better than average economy also contributed to the state’s high score. The job market in Montana boasts 4% unemployment, one point below the national average.
Even though income was below the national household average, the average credit card balance for Montana residents was $4,143, also below the national average. In addition, Montana’s credit card utilization rate was at 27% — one of the lowest states in the nation.
Rogers deflected the idea that Montana residents had less financial temptations saying, ‘We have plenty of diversions — you can go skiing every weekend if you want.’ Even ranchers who live far from away from any shopping mall can easily overspend on Amazon — just by the click of a mouse.
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