States Began 2021 With Record Personal Income Growth

More than half of states recorded their strongest personal income growth ever in the first quarter of 2021 as the economic recovery accelerated. Multiple rounds of pandemic-related government benefits drove year-over-year gains in every state, while earnings—the bulk of personal income—also edged up in most states. The sharp rise in total personal income will be temporary, however, as federal relief payments taper off.

In the first quarter of 2021, nearly all states recorded double-digit growth in total personal income compared with the same period a year earlier, when the abrupt March-April 2020 recession first derailed the economy. Utah (19.8%), Idaho (19.4%), and West Virginia (19.2%) experienced the sharpest increases. Nationally, the sum of residents’ personal income from all sources rose an inflation-adjusted 14.4%, the largest year-over-year growth rate since reporting of this key economic indicator began in 1948.

A spike in government assistance to individual Americans drove the dramatic gains in every state, with total aid more than doubling in Hawaii, Nevada, and Utah, compared with a year prior. Between January and March 2021, one-time payments of up to $600 and $1,400 per qualifying individual, disbursed from two federal economic relief packages, respectively, as well as enhanced unemployment payments, helped millions of Americans weather the crisis. With the extra aid, income received primarily from multiple sources of government assistance—including Social Security, Medicare and Medicaid, safety-net programs, and state unemployment insurance—experienced its second-largest quarterly growth on record.

Minority Americans are turning to so-called decentralized financial products like cryptocurrency as a central part of their financial lives following decades of distrust in traditional banks.

About 23 percent of Black and 17 percent of Hispanic Americans own cryptocurrency compared to 11 percent of whites, according to two Harris Poll-USA Today surveys of more than 2,000 U.S. adults in June and July.

Decentralized finance, or DeFi, is the term for financial products that are available on a public network that has no single authority or organization overseeing it. There are no intermediaries such as banks involved in transactions and no credit checks. The category includes cryptocurrency as well as investments in digital assets created from photos or artwork. 

Advocates of DeFi say it will benefit to people left behind by the financial system, while others decry the risks. 

Compared to older generations, millennials (ages 24 to 39) and Gen Z (ages 8 to 23) have less debt -- though this is likely just because they've had fewer years to accumulate debt. A 2019 Northwestern Mutual study found that Gen X reported the highest levels of personal debt with $36,000 on average, followed by baby boomers at $28,600, millennials at $27,900 and Gen Z at $14,700. Based on some of the reasons why these younger generations are going into debt, it would seem that they are choosing to go into debt.

I talked to financial experts about the life events millennials and Gen Z are going into debt for, and what they should be doing to minimize and manage this debt.

Why Are Younger Generations Racking Up Debt?

"Debt can be an important tool towards managing opportunities, and for Gen Z and millennials, life experiences like weddings, trips, educational classes and philanthropic support are all viewed as very worthy and satisfying 'investments' compared to previous generations," said Kayly Gerowski, associate director at Pathstone. "What this means is that old metrics of allocating approximately 33% of income towards housing is now being reduced to accommodate 'wants' elsewhere." This debt also can take a toll on emotional and physical wellbeing.

The Consumer Finance Protection Bureau (“CFPB”) issued a long-awaited proposed rule that could significantly impact credit union operations and their third-party loan operating system vendors.

The proposed rule, pursuant to Section 1071 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”), is designed to help small businesses gain access to the credit they need and deserve by increasing transparency in the lending marketplace. With this proposed rule, mandatory collection and reporting requirements would increase to a total of 21 data points from the initial 7 data points required by statute.

Background

Section 1071 of the Dodd-Frank amended the Equal Credit Opportunity Act (“ECOA”) requiring covered financial institutions to collect and report to the CFPB certain data regarding applications for credit for women-owned, minority-owned, and small businesses, among other requirements. The rule defines a “covered financial institution” as one that originated at least 25 covered credit transactions for small businesses in each of the two preceding calendar years. There is no carve out for credit unions under a certain asset threshold.

President Biden has launched an ambitious agenda to crack down on people and corporations who aren’t paying the taxes they owe. That agenda, however, is being held up by financial institutions lobbying to avoid new reporting requirements. Common sense would reject their arguments against moving forward, and Congress should, too.

Treasury Department studies project that the tax gap—the difference between what people pay and what people owe—now hovers around $600 billion per year. More than one out of every seven dollars that are owed in taxes are not paid. This has occurred in part because IRS funding and staffing levels have gone downhill over the past 10 years

The noncompliance rate also depends critically on information reporting. Noncompliance is particularly low where third-party information reporting occurs. For example, employers routinely withhold income and payroll taxes on their employees’ wage, send the funds to the government, and report those amounts annually to the worker. As a result, the estimated noncompliance rate on such income is around 1 percent. In contrast, income from farms and sole proprietorships do not have such withholding or third-party reporting and noncompliance in those and similar areas is estimated to exceed half of all taxes owed

About $40 million in wages were garnished from certain student loan borrowers' paychecks in May and June 2021 despite the Education Department (ED) prohibiting wage garnishment amid the ongoing pandemic student loan payment pause, according to newly published federal data.

The data, obtained through a freedom of information request by D.C.-based advocacy group Student Borrower Protection Center (SBPC), revealed that guaranty agencies — state or private non-profit agencies that help administer the Federal Family Education Loan Program (FFELP) — had seized $27.2 million in May 2021 and $12.9 million in June 2021.

"The results of our FOIA request make clear that despite ED’s orders, the most vulnerable student loan borrowers continued to have money taken out of their paychecks during an ongoing pandemic," the SBPC stated in a blog post. "These findings are only the latest unfortunate reminder that America’s student debt collection machine has grown beyond anyone’s ability to control it, including the Department of Education’s."

America's workforce is considerably older and more diverse than it was 40-some years ago.

Federal labor economists recently analyzed federal labor data to see just how much the nation's labor force has changed in recent decades, according to a Sept. 1 blog post on the US Bureau of Labor Statistics site.

In examining the Consumer Population Survey data, the economists looked "peak to peak," zeroing in on 1979 and 2019 — two high points of employment and economic activity.

Here's a quick look at how the American labor force has changed and some of the reasons behind the biggest shifts in its composition.