Going for Broke 

Faith got him up and running, but faith alone couldn’t solve his mounting problems. An entrepreneur of sorts, he had spread his resources thin to realize a vision, one now shared by many. Land was bought, buildings built, followers found and supported. At one point he had even printed his own money. But now his responsibilities were gaining on him. A loan he had guaranteed in good faith for some business associates had defaulted and come due; the sizable monthly interest payments he had made on his property, he learned, were being pocketed by an unscrupulous middleman. Too, the result of his efforts, not yet self-supporting, required ongoing expenditures. The circumstances threatened consequences that could affect hundreds of people and possibly put him out of business.

Foreclosure proceedings were looming when an attorney told him of a new law that would offer protection from creditors and a chance to reorganize and start from a clean slate. In the process, some debts could possibly be written off completely. Unsure of the morality of taking advantage of this law, he was even less sure that he had any other choice.

On April 18, 1842, Joseph Smith, founder and prophet of the fledgling Church of Jesus Christ of Latter-day Saints, filed for bankruptcy in Nauvoo, Ill., not three months after the federal law first hit the books.

Behind every decision to file for bankruptcy, be it for circumstances beyond one’s control—such as a natural disaster—or as a result of fraud or poor judgment, is a story not unlike Joseph Smith’s: about a life under stress. It is difficult to examine bankruptcy without examining behavior, and behavior is nothing if not influenced by culture. And here in Utah, the culture is nothing if not influenced by the Church of Jesus Christ of Latter-day Saints, a faith that preaches financial principles like no other. This cannot be ignored.

But this is not so much a story about religion as it is about faith and how faith is not immune from the law of unintended consequences. It is about how Utahns, in the pursuit of a lifestyle that promotes and is consistent with their faith, often find themselves financially strapped as a result. It is an examination of a religiously homogeneous state that also happens to lead the nation in bankruptcy filings and poses the question: Are the two connected?

In a state that was founded by self-supporting pioneers, that prides itself on thrift and whose motto is “Industry,” our rise to the top of the bankruptcy heap came as a surprise to many. Last year, Utah took the lead as having the highest number of personal bankruptcies per household in the nation. One of every 37 Utah households, at last count, chooses this route out of financial difficulty. There’s no sign of the state giving up the torch, either. Six percent more people filed for protection in the first six months of 2003 than during the same period in 2002. Two decades ago, Utah ranked No. 33, and while bankruptcies have been on the rise nationwide for the past few years, they’ve obviously been rising faster here.

“The [bankruptcy] story in Utah is far more complicated than in other states,” says Paul Godfrey, a professor of ethics at Brigham Young University. “There is no smoking gun as to why so many people are filing.” In Tennessee, for example, a close second behind Utah in the number of filers, he says that demographics, such as a poorly educated populace, go far in explaining why one out of every 40 households goes bankrupt. In contrast, Utah, historically, has a high literacy rate. Intrigued by the apparent disconnect, he sent some of his students into the field to find out what was happening.

“It’s clear the LDS Church influence plays some kind of role in bankruptcy,” Godfrey says of their findings. “I had students look at different religions. The LDS Church is the only one that talks about financial literacy from the pulpit. But there tends to be some weird cultural values that may encourage people to engage in riskier financial transactions.” He describes these as informal myths—beliefs that, though neither taught nor encouraged by the church, form among some members. Blind faith, in a sense.

Godfrey’s students discovered two myths that stem from the tithing regularly practiced by many church members as a kind of price of admission to the faith. One myth says that tithing will protect a person from financial harm. The second is that tithing will result in financial blessings. In a way, these myths reflect LDS Church doctrine, except that they stop short of the need to be pragmatic. Godfrey points out, however, that his research did not go so far as to explore just how many people actually believed such myths or acted upon them, or how many people would use such myths to explain why they went bankrupt.

Mormons who file for bankruptcy have yet another burden to bear: They must contend with chidings from the LDS Church leadership. L. Aldin Porter of the the First Quorum of the Seventy said in a 2001 speech at BYU that bankruptcy, “on the books for the rare occasion when true disaster strikes … cannot function as it ought in a society with overextended and, frankly, somewhat dishonest people,” adding that those who file should think long and hard whether they are worthy of holding a Temple recommend for having done so.

There is never a single, simple reason for filing for bankruptcy. Deadbeat or merely irresponsible, disaster or dishonesty, filers in Utah have a host of unique reasons, and consequences, to deal with when they file.

Dr. Jean Lown is informally known as Utah’s bankruptcy guru. A professor at Utah State University, she published, with colleague Barbara Rowe, in 2002, a study of Utah consumer bankruptcy petitioners. Funded by a USU research grant, they believed that by studying the nature of bankruptcy in the state where it is most prevalent, the findings could be used by educators, counselors and policy makers nationwide to better address the issue.

The pair examined a random sample of 2,567 Chapter 7 and Chapter 13 cases filed in 1997, a year chosen so they could study the outcomes of the 3-to-5 year payment plans associated with the Chapter 13 cases. Chapter 7, also known as the liquidation bankruptcy, allows the debtor to keep certain exempt assets (from a list provided by the state), while other items can be confiscated and sold by the court Trustee assigned to the case. The first creditors paid are those with secured interests; unsecured creditors, such as most credit cards, tend to disappear. Chapter 13 allows debtors to keep their home, reorganize other obligations, and establish a 3-to-5 year plan to pay at least a portion of the remaining unsecured debts, the remainder of which is discharged after successful completion of the plan. Many see this as the honorable route, because at least some of the debt is repaid.

Though public and accessible on the Internet, individual case records can only be selected using a rudimentary search mechanism, and then for seven cents a page (the Bankruptcy Court waived this fee for the USU researchers, however). Also, bankruptcy filers do not have to divulge much of the data that could provide researchers a greater understanding of demographics. So the pair, assisted by a graduate student, had to print out case data one at a time and slog through it. Information on such things as gender is not collected at the time of filing, so they had to guess by first names and other clues. But the general face of bankruptcy in Utah began to emerge.

“Debtors look just like the rest of America, they’re just drowning in debt,” she says. “People don’t so much have a lot of debt, just a lot of debt in relationship to income.” The random sample they examined showed Utah filers as predominantly young (about 36 years old), single, wage earners with little time on the job at their present employer.

Debtors reach high points of indebtedness in many ways, she says. Job loss, pay cuts and uninsured medical expenses, for example, all can encourage the use of debt to maintain a lifestyle and a household. And here in Utah, those households include larger than average families, larger than average houses, more cars per household, and a lower than average per-capita income.

Viewed through the prism of another statistic—Utah is home to the youngest population in the country—another, more faith-related, picture emerges. Devout young Mormons tend to marry and start families as soon as possible, regardless of their financial situation. And starting a family when at the low end of one’s earning potential is exacerbated by another problem:

“People in Utah tend to be more aware of the status of their neighbors,” Godfrey says. “That common knowledge, plus the pressure to keep up with people, may lead some to overextend themselves and go into bankruptcy.” Increasing that pressure to keep up, he says, is that, at least within the LDS culture, one’s notion of a neighbor extends far beyond the person living right next door or just down the street, all the way to the boundaries of the local ward.

A dissertation produced by a BYU Ph.D. student in 1998 supports this peculiar form of keeping up with the LDS Joneses and sheds some light on possible consumption behaviors that could result.

In “Wealth, Poverty, and Religiosity-Based Attributions: A Study of Utah County Mormons,” John Rector recorded that “some Mormons living in Utah County do tend to make differing religious and spiritual attributions about fellow church members based upon socioeconomic status—wealthy church members were perceived in a more positive spiritual light than were poor church members.” Rector didn’t study consumer behavior, but his findings beg the question: Will some people overextend themselves financially so as to appear more spiritual?

“I do believe that religious beliefs and perceptions can play a significant role in our approach to material things,” says Rector, now on the faculty at the BYU-Idaho Counseling Center. Though he acknowledges that church members hear frequent cautions about the evils of debt and believes that such messages do have some impact, he says he hasn’t heard an explicit talk about the avoidance of wealth or conspicuous consumption since a 1976 speech by President Spencer W. Kimball. “In fact, there are numerous messages to the contrary,” says Rector. “The brethren, by and large, continue to be selected from an upper-middle class to upper-class group. What messages might this imply to the membership at-large about what the spiritual ideal is or what it means to be righteous?”

“I think [Rector’s] findings are consistent with the social influence of consumers’ willingness to increase consumption [using] debt,” says Russ Morgan, assistant professor of marketing at the University of Utah. “I would agree that, if socioeconomic status is extremely important, spending or putting wealth into evidence would naturally follow.”

While Rector’s research suggests that notions of spirituality and goodness are two additional elements at play, at least among Utah County Mormons, it must be noted that the Mormon brand of “keeping up with the Joneses” is not wholly unlike that practiced by American consumers at large. Morgan refers to Thorstein Veblen, the economist best known for coining the phrase “conspicuous consumption” in his seminal book, “The Theory of the Leisure Class.” Veblen made a distinction between two motives for consuming conspicuous goods: invidious comparison, or the attempt of a member of the higher class to distinguish himself from the lower class; and pecuniary emulation, or the attempt of a member of the lower class to pretend to be a member of the higher class. In other words, people consume to achieve and maintain the appearance of class and status.

In looking for differences with other states, and by extension other religious and cultural environments, BYU’s Paul Godfrey looked at the Websites hosted by the state governments of the five New England states that happen to have five of the six lowest bankruptcy rates (Yankees, incidentally, are like Utahns, known for being thrifty). He found that each one provided links to offsite personal financial information. In comparison, he says, Utah.gov offers little to those who seek the practical information to make them better money handlers. “In Utah, the government is really passive in this area,” says Godfrey.

He suggests that the LDS Church, too, may be more passive than it would appear at first glance. “There is a Church publication called ‘One for the Money’ that actually provides people with a mock-up budget and a plan for debt reduction,” Godfrey offers as an example. But in a higher tech form that could potentially offer greater and easier, and therefore more useful, access to information, it was a different matter. His students studied ProvidentLiving.org, a Website hosted by the LDS Church to provide its members with information and guidance regarding a number of living matters. Their assessment: plenty of discussion of principles, but little information to help put those principles into practice.

Visiting ProvidentLiving.org for myself, I clicked through Resource Management to the topic of debt management. “Teaching Teens About Credit,” originally published in the December 1998 issue of Ensign magazine, seemed a good place to start since, as Jean Lown discovered, Utah bankruptcy filers tend to be younger. A bulleted list suggests pertinent topics for discussion with one’s teenager: “Talk about the temptations of easy money;” “Help older teenagers set up a budget;” “Show teens what happens to a [credit card] balance if only the minimum amount is paid each month.”

These sound reasonable and straightforward enough, but they all presume that the parents themselves understand how you could end up paying for last night’s dinner for a long time.

Utah state government’s lax approach to the problem may be a thing of the past. In 2003, the Legislature passed, and the governor signed, Senate Bill 154, a bill directing the Utah State Office of Education to revamp educational requirements at the high school level. Included in this bill is a mandate to introduce a semester-long high school course, beginning with the class of 2008, that covers general financial literacy. While a number of states recommend such a course and offer it as an elective, only four—Idaho, Illinois, Kentucky, and New York—currently require it in order for a student to graduate.

“Most people are anxious for this to happen,” says Julie Felshaw, an economist with the Utah State Office of Education. “As with any social problem [such as bankruptcy], people look to education to change it.” Felshaw is leading a group of economists, educators, and others to determine the standards and objectives of the general financial literacy requirement; their suggestions are due at the Utah State Board of Education on Oct. 1. Aside from determining course content, the group must also figure out how to bring teachers up to speed with the topic. “Not every teacher is ready to teach financial lit,” Felshaw says. Many need the very financial skills their students need.

It remains to be seen whether the course will address some of the unique cultural issues facing Utah students, but one standard in an early draft of the course outline sets forth the need to “Discuss the importance of identifying values and setting goals as they relate to financial success.” Will any of these values reflect the influence of LDS Church principles? It’s not yet clear, but if this early draft is any indication the course promises to cover quite a bit of ground, including the far-reaching consequences that personal financial decisions have and the need to distinguish between wants and needs.

The high school general financial literacy requirement has been championed by state Rep. David Hogue, R-Riverton, for three years. “The high bankruptcy rate in Utah is probably not completely due to [a lack of] financial literacy, but [this lack] is a big part,” Hogue says. In the past, he says, there were a number of organizations, such as consumer credit counselors, who were trying to teach financial literacy, but not all were on the same page. Plus, some had their own agenda. Utah’s high rate of bankruptcy was the “kick in the pants” necessary to encourage standardizing the educational component. “I think we’re doing our kids a disservice if we don’t prepare them to be good consumers,” says Hogue. “If they’re going to survive in our society, [financial literacy] is one of the most important things to look at.”

And surviving in society, according to some, has encouraged widely-held assumptions about money and personal finance that reveal just how financially illiterate many are.

As director of the Family Life Center at Utah State University, Tamara Hinck frequently holds workshops to educate people about financial literacy and other skills. Typically, when asked whether they have any debt, few workshop attendees raise their hands. However, when Hinck poses the question differently, asking about financed possessions such as vehicles and homes, even credit cards, many more hands shoot up. “The concept within our society is that necessities for life aren’t really debt,” she says.

Such widespread and accepted views of social entitlement lead Jean Lown to believe that the blame for indebtedness doesn’t lie solely with the debtor. “It takes two hands to clap,” she says. “Lenders are giving money to borrowers who have no or little capacity to repay the debt. Studies show that some debtors have 12 to 16 credit cards. That’s absurd—what were the lenders thinking?” Part of the problem, she says, is that many lenders don’t look beyond a person’s credit score, which doesn’t consider, among other things, consumer behavior. Looking at a credit score, a lender has no idea how many mouths someone has to feed, or how much they spend each month on gas for their SUV, ATV or OHV.

Which brings us back to the influence of the LDS Church. There’s another factor at play in Utah that can contribute to financial difficulty if not properly anticipated: charitable giving. The Salt Lake City metropolitan area leads the nation in this activity, mainly because of the tithing practiced by many members of the LDS Church. This can be particularly significant when applying for a home mortgage, as the ratios used by lenders rely upon gross income figures. A typical household that gives 10 percent of its gross income to the church can have its net cash flow reduced by at least 15 to 20 percent. That’s a big chunk of change for a lender to ignore.

Kelly Matthews, an economist with Wells Fargo Bank, believes it is the responsibility of the individual, not that of the lender, to monitor when an approved loan amount may be too much for one’s budget to handle. “There’s never any excuse for irresponsible financial management,” he says.

Though Jean Lown does not absolve the responsibility of the individual in such matters, her willingness to question lenders’ contributions to the problems of indebtedness, contrasted by Matthews’ view that the responsibility is primarily personal, helps to illustrate the two sides of a much broader and even philosophical debate: As individuals who exist within a national culture that glorifies and encourages consumption, is it fair to deny the influence of the collective group upon individual choice? Is it fair to blame the individual, alone, when things go bad—especially in a state where faith is so influenced by social status?

“I strongly believe that individuals’ preferences are not independent of the consumption behaviors of others,” says Russ Morgan. “Marketers also play a contributory role. It would be prudent to first examine what role the culture of consumption is playing.”

If the LDS Church is doing anything to address the spate of bankruptcies, it isn’t saying. The Public Affairs office would only issue a prepared general statement in response to specific questions. “Whether in good times or bad,” says spokesperson Dale Bills, “counsel from church leaders regarding prudent money management has remained consistent.” The statement did not address Utah’s exalted status as the country’s biggest bankruptcy problem.

Bankruptcy must be exceptionally difficult for faithful Mormons. Friends who were raised in the LDS Church acknowledge without boasting or bitterness that to live up to the high doctrinal standards and implied expectations is a challenge for many. Never mind the temptations faced when following the Word of Wisdom. Accepting a lifetime of callings through the church’s lay ministry, going on (and paying for) a mission, starting a family, establishing home ownership, a career and education (often all at once)—all are great hurdles to jump, especially at a young age. Many have a significant financial component attached. Add tithing to the mix, and the honest desire to be good and faithful, and the potential difficulties brought about by any unfortunate circumstance are compounded like the interest expense on a growing credit card balance. In such a situation, after doing everything as instructed to be righteous and good, the last thing anyone wants to be labeled is an irresponsible and dishonest deadbeat. And why should they be?