South Dakota: Good in savings, poor in pay, debt
Feb 14, 2012
State's financial profile reveals a robust outlook beset by acute problems
At 4.2 percent, South Dakota has one of the lowest unemployment rates in the nation.
The state also boasts a low rate of delinquent mortgages, consumers with subprime credit and borrowers who are overdue making payments.
That’s the good news, according to a new study by the Corporation for Enterprise Development.
The bad news?
South Dakota has the lowest average annual pay in the nation at $28,773 and one of the highest rates of college graduates graduating with debt. Added to that, 21.7 percent are considered asset poor — meaning they don’t have a cushion to rely on in the case of an emergency. It’s a position that a growing number of Americans nationwide are finding themselves.
That’s according to the Corporation for Enterprise Development Assets & Opportunity Scorecard, which provides a comprehensive look at Americans’ ability to save and build wealth and fend off poverty. The study assesses policies that are helping residents build and protect assets in five areas: financial assets and income, businesses and jobs, housing and homeownership, health care, and Education.
“South Dakota is a wonderful place to live, but some of those things are kind of a strike,” said Tracy Gran, director of Consumer Credit Counseling Service with Lutheran Social Services of South Dakota. “Then, due to that, people tend to use more credit cards and those types of things in an effort to supplement their income, and that’s not the right use for those things … it compounds the issue.”
Overall, South Dakota fared around the middle of the pack in the scorecard, with an overall 22. While it received overall high grades in areas of housing and home ownership and financial assets and income, it staggered with an “F” grade in health care. The state lagged in health care largely because of a high rate of uninsured by race and income as well as the percentage of the average employee contributions for insurance.
As part of the study, the foundation made several recommendations:
Establish a housing opportunity fund to increase access to safe and affordable housing. The fund would stimulate additional investment and address unmet housing needs across the state.
Match the deposits of those who save in a 529 college savings account and increase the amount of need-based postsecondary financial aid to increase college attainment, particularly for low-income populations, and reduce the college debt burden.
Expand access to early childhood education by investing in public-private partnerships and coordinate services through an Early Learning Council.
“In South Dakota, there are a few areas where the state does well,” said Kasey Wiedrich, who lead the scorecard study, indicating the high grades for housing and financial asset sectors. “Looking at disparities by race, you can see that any prosperity that exists in South Dakota is not shared equally by everyone.”
For example, minorities are 3.5 percent more likely to be uninsured — the worst rate in the nation - and 3.6 percent more likely to be unemployed in the state.
That can be a double-edged sword, meaning that some indicators such as annual income and asset poverty may be higher in other areas of the state, but officials also say that the overall grades South Dakota received are not representative of poorer areas of the state, particularly the reservations.
Homeownership misses Pine Ridge
“For South Dakota to get an “A” in (housing and) homeownership just right away caught my attention in my review of the scorecard,” when lack of adequate housing and crowding have been an issue on the Pine Ridge and other reservations for years, said Tawney Brunsch, executive director of the Kyle-based Lakota Funds, a lead local organization with the study. The high mark in the financial assets and income section also is misleading she said, considering unemployment on Pine Ridge exceeds 80 percent.
“It points out the need for an accurate picture of the reality, and that unfortunately has to be through numbers,” Brunsch said, explaining until the state has accurate numbers regarding the reservations it will be difficult to move towards improvement.
Susan Randall, executive director of South Dakota Voices for Children, said there are areas of concern that need to be addressed, including annual pay and the level of graduates entering the workforce with debt.
“Most of them are entering the workforce, they have college debt, and they’re going into a workforce with the lowest pay in the nation,” she said. “It’s a tough situation.”
When it comes to saving, the latest recession has helped kick people back into gear, said Dana Dykhouse, CEO of First Premier Bank.
But he said that while people are saving more, they often aren’t meeting the recommended threshold of three months of expenses in savings.
“(People are) doing better but still have a ways to go,” Dykhouse said. “There’s a little bit of a debt hangover. People are trying but they still have accumulated debts. ... People didn’t live just paycheck to paycheck but credit card to credit card. I’m not saying credit cards or debt is bad, but it has to be properly managed.”
But while Dykhouse said there are areas for improvement, he also pointed out that people working in Sioux Falls, in particular tend to be new graduates or creating start-up companies and just haven’t had the time to accumulate savings. He added that in an ag-heavy state, many farmers have their assets tied up in property, which aren’t considered liquid.
He said it’s a situation of whether to look at the glass half-full, or half-empty.
South Dakota continually is ranked as having the highest average credit scores in the nation, which means “we manage our money well, we just haven’t accumulated it yet,” Dykhouse said. While average annual pay is lower, residents also have a lower tax burden and a lower cost of living — when measuring just liquid assets and not property, the liquid poverty rate increase to 43.4 percent in the state.
In the past years, Gran said more high-income people have come in for counseling. The scorecard numbers are nothing new, since the state’s high rate of working parents, low annual average pay, unemployment rate and bankruptcy rate have been well documented.
Low incomes hinder homeownership
The low bankruptcy rate indicates that people want to pay off debt and want to better their situations. But the low income can have a multiplying effect on housing. If a person has a limited income, for instance, they have less to provide for a down payment, which means their monthly mortgage payment will be higher and eat up a larger percent of the monthly income.
Moving forward, Randall said Voices For Children already is working at the state level to make the foundation’s recommendations a reality.
The group is exploring the creation of a housing opportunity fund. While there are several ways such a fund can be established, Randall said typically a commission is created to run the fund while a state law must be passed to establish a funding source. Regions across the state could then decide how the funds could best be used.
Education also is a key focal point for securing financial stability for future generations.
“When you’re trying to address financial security, you really have to have a two-generational strategy,” she said. “Part of that is young children have access to high quality preschool. The evidence is very strong that kind of investment yields tremendous rewards.”
Already a pilot preschool program has been created in Sioux Falls, and soon in Rapid City. But an important part is the creation of an Early Learning Council that can advance coordination and collaboration across the state.
The group feels a public/private partnership is the best road to take given there already is some structure in place in the state. But such a council could help everyone work together, she said.
Tony Venhuizen, director of policy and communications for Gov. Dennis Daugaard, said some of the recommendations are policies the state already is looking at, such as increasing college attainment. “At the end of the day, if you add all of the factors together — low wages, not a lot of assets — we should be financially in trouble. In reality, we have one of the highest credit ratings, we manage our money better than everybody else,” Dykhouse said.
That’s not to say there isn’t room for improvement, and Dykhouse also said that state and business officials must continue to create higher paying jobs in the state.
But in general, the state favors maintaining a low tax burden over creating new programs that must then be funded.
“In a general way ... what South Dakota does to help with this kind of problem is that we just keep our tax burden on the citizens very low,” Venhuizen said, adding that approach has helped the state weather the recession.
On the reservations, Brunsch said the recommendations are a fine approach statewide.
“But I think we’ve got bigger needs here on the reservations, so honestly it’s just for existence,” she said. She thinks the focus should be workforce development.
While reservation housing is scarce, simply creating a fund would do little to solve the problem.
“We’re not even able to build a simple savings account or start building that relationship with a potential lender to get us to the point where we’re ready for a mortgage,” she said.
Statewide, Randall emphasized that the picture wasn’t all grim.
“But we could do better,” in areas like education and affordable housing. “It seems to me if we take some of those steps, we could evolve to a greater more vibrant economy.”