Economic Paradox: Booming Growth, Struggling Families

Houston is often celebrated for its booming economy, which has created numerous opportunities for many residents. With a Gross Domestic Product (GDP) that consistently ranks among the best in the nation and a thriving small business sector, it’s easy to see why many are optimistic about their future here.

At the same time, over 313,000 Houston-area households live below the poverty line, and an additional 713,000 cannot afford their basic needs despite working full-time. That is nearly half of all households in the Houston region that are financially struggling or in crisis.

Even more concerning is that while many Houstonians have access to a credit card, a significant portion—about a quarter—use non-traditional pathways to access money, like payday loans or check-cashing establishments. Additionally, many others have subprime credit scores (below 660). These households are the ones most likely to have little to no extra cash, forcing them to rely on credit to cover emergency expenses. For people with subprime credit, accessing credit comes with exceedingly high interest rates making borrowing more expensive. High interest rates make people more likely to fall behind on payments and have debt go into collections, making their ability to secure quality, low interest credit in the future even less likely. This is the cycle of debt that burdens so many of our neighbors and makes it harder to stabilize and experience upward mobility.

Houston’s economy remains strong

The Houston region is home to one of the most vibrant economic engines in the country. Metro Houston’s GDP, at $550 billion in 2023, places us seventh highest in the country and accounts for 26% of the GDP for the entire state of Texas.

Additionally, job growth in our region, an important measure of economic expansion and the overall strength of the job market, continues to outpace the state and the nation, particularly in Fort Bend and Montgomery counties.

In 2022, the job market experienced a resurgence, bouncing back from the significant job losses felt during the COVID-19 pandemic in 2020. In Fort Bend County, job growth soared by an impressive 13% in 2022, while Montgomery County saw a healthy increase of 7%, and Harris County added 4% compared to the previous year.

Between 2021 and 2022, the combined growth across Fort Bend, Harris, and Montgomery counties led to the creation of nearly 130,000 new jobs—historically, the entire nine-county Houston metro area usually gains about 65,000 to 70,000 jobs annually.

Taking a broader view, looking at the period from 2010 to 2023, it’s clear that the job growth in our local counties has far outpaced national trends. Fort Bend County’s job market expanded by 88%, Montgomery County’s by 77%, and Harris County’s by 21%. In comparison, the national job growth during the same time frame was just 19%. This solid growth underscores the resilience and dynamism of our local economy.

Small businesses (defined as businesses with fewer than 10 employees) continue to be a driving force behind our strong economy. The number of small businesses grew by 22% in Harris County, 62% in Montgomery County, and 101% in Fort Bend County between 2010 and 2022, far outpacing the nation (12%).

Additionally, across the Houston Metro Area, 39% of small businesses are owned solely by people of color compared to 21% across the nation, with Asian Americans, in particular, demonstrating a strong entrepreneurial presence—they own 22% of small businesses in the region but comprise 8% of the population.

In 2020, small businesses in our region were slightly more likely to be owned by women (25%) compared to the state (23%) and the nation (22%). However, between 2020 and 2021, the percentage of women-owned small businesses in Houston decreased by 8 percentage points to 17% in 2021 from 25% in 2020, suggesting the pandemic had a disproportionate effect on women-owned small businesses.

Overall, the Houston region continues to have a strong economy and is a place of business opportunity and growth.

Despite a thriving economy, not everyone benefits

However, Houston’s vibrant economy masks a stark truth: 44% of households can’t make ends meet, and about half of total income goes to the top 20% of households. In comparison, the bottom 20% holds 3-4% of total income. This highlights a significant opportunity to bridge the gap and support our neighbors facing economic difficulties.

As of 2023, the poverty rate in Fort Bend and Montgomery counties has consistently been lower than the state and the nation at 9% and 11% respectively. In contrast, the poverty rate in Harris County has consistently been higher at 16%. While the rate of individuals living in poverty has decreased since 2010, the number living in poverty has increased with now more than 900,000 Houstonians living below the poverty line.

While the poverty rate, with its limitations (i.e., outdated formula, does not adjust for regional cost-of-living differences, excludes essential needs like housing and healthcare, excludes non-traditional households, etc.), is not a perfect measure of economic hardship, it remains a useful indicator when considered alongside other metrics. Tracking the poverty rate over time helps us assess whether economic growth is broadly shared or disproportionately benefits some while leaving others behind.

Due to its limitations, the poverty rate underestimates how much money people actually need to get by today compared to past decades. For reference, in 2024, the poverty threshold was $16,230 for an individual and $32,355 for a family of four. Indicators that take into consideration more realistic costs of living paint a much more troubling picture of how many of our neighbors are really struggling to meet their basic needs.

The acronym ALICE stands for Asset Limited, Income Constrained, and Employed and represents families that are working but unable to afford basic necessities like housing, food, childcare, health care, and transportation. ALICE income thresholds include a more realistic cost of living than federal poverty thresholds. To put things into perspective, the Texas cost-of-living in 2022 was $26,268 for a single adult and $72,816 for a family of four.

On top of the 13% of households in the three-county region considered to be living below the poverty threshold, there are an additional 31% of households not considered to be living in poverty but are considered ALICE, higher than the state and national rates of 29%. And while the rates of ALICE households in our region have mostly stagnated over the past decade, the number of ALICE households has increased nearly 50% since 2010. This means that, in our region, there are 313,000 households living in poverty and an additional 713,000 households considered ALICE. In total, that’s over 1 million households—44% of all households—struggle to afford basic necessities and are at risk of increased hardship if an unexpected expense arises.

Access to credit can be a lifeline for many

When emergency expenses such as a sudden medical need, a vehicle breaking down, or lost groceries due to a power outage arise, the ability to access credit can be a lifeline if savings are insufficient. Which is the case for many Houstonians. According to the 2024 Kinder Houston Area Survey, nearly half of residents in Harris County couldn’t come up with $400 to cover an emergency expense. But an analysis by JPMorgan Chase Institute found that 43% of low-income households who could not afford an unexpected $400 emergency would have been able to do so if they had additional access to credit, specifically short-term credit which is often accessed in the form of a credit card.

In the Houston region, credit card access is widespread with three quarters of residents holding a credit card. This represents a significant increase of nearly 20 percentage points in less than a decade, rising from below state and national averages in 2015 to surpass the Texas average and nearly match the U.S. overall by 2023.

However, having access to credit does not mean it is quality credit. Being able to access quality credit typically requires having a high credit score. Credit scores range from 300 to 850, with higher scores indicating “better creditworthiness.” A good credit score can help individuals secure better interest rates. Conversely, a low credit score, or subprime credit, can make it not only difficult to obtain credit but can also result in higher interest rates, making borrowing more expensive.

While the rate of residents with subprime credit (i.e., below 660) in our region has decreased over the years, about a quarter of residents in our region still have a low credit score.

Across all three counties, the rate of residents with a subprime credit score decreased by 5-6 percentage points between 2015 and 2023. However, Harris County still has nearly 1 in 3 residents with subprime credit, and Fort Bend and Montgomery counties have 1 in 4 residents with subprime credit.

This matters because people with low credit scores are more likely to be denied credit cards and loans from traditional banks, leaving them to pursue credit through non-traditional sources (e.g., check-cashing services, pawn shop loans, auto title loans, and paycheck advances/payday loans). While three quarters of our region’s residents have access to credit in the form of a credit card, a quarter of residents are considered unbanked or underbanked. Unbanked individuals are those who rely on those non-traditional sources of credit because they are not in the formal credit economy. Underbanked individuals are those who have a checking or savings account with a bank or credit union but also use alternative financial services to manage their finances.

While the rate of unbanked households in our region was improving, recently it has begun to tick back up and remains well above the national rate.

Between 2017 and 2021, the percentage of unbanked households declined across the nation, state, and Houston metro. However, as of 2023, this rate has increased in Houston and across Texas. The Houston metro area’s share of unbanked households is more than twice that of the nation and slightly above Texas.

So even though additional access to credit could potentially help many in our region combat an unexpected financial emergency, for at least a quarter in our region who have subprime credit and/or are underbanked or unbanked, additional credit access could lead to high interest rates and exploitative repayment plans that can trap users in a cycle of debt. According to Financial Health Network, in 2022, Americans spent $303 billion on interest and fees for everyday financial services. Of that total, $225 billion, or 84%, of that was paid by financially coping and vulnerable households. These households struggle with debt, lack savings, struggle to pay bills, and often rely on high-cost borrowing options.

Using credit to cover essential needs can lead to unproductive debt and debt in collections

Having debt is not inherently negative. Debt can be a tool for investing in opportunities that may yield benefits in the future, like buying homes, starting businesses, and paying for high-quality education or in-demand skills training. All of these things have been identified as good investments that can increase one’s economic opportunity and mobility.

However, unproductive debt is debt incurred to pay for basic needs and living expenses. Because it does not have the same long-term benefits, unproductive debt is riskier for the debt holder and society at large.

Overreliance and dependence on credit can lead to unmanageable debt, making it harder to pay bills in full and on time. When payments are missed, individuals face penalties and late fees which can lower credit scores and raise interest rates. This could result in borrowers losing assets like cars and homes and/or debt going into collections. Debt goes into collections when the original creditor cannot collect payment on the debt, so they either sell or transfer the debt to a collections agency that tries to recover the money. Consequently, it becomes harder and more expensive to access credit.

The good news is that the percentage of individuals in the Houston region (with credit history) with debt in collections has been in decline since 2017. However, despite improvements, this rate is consistently higher across Texas compared to the nation. As of 2023, the share of people with debt in collections is still 10 percentage points higher in Texas (32%) than in the U.S. (22%). Additionally, Texas—along with Louisiana, South Carolina, and Georgia—has the highest percentage of people with debt in collections in the nation. This finding is even more striking since Texas is the second-most populous state. In Harris County, 34% of residents have debt in collections, the highest level in Houston’s three-county region. About 22% of people in Fort Bend County and 25% in Montgomery County also have debt in collections, which are closer to the national average.

Creating a more financially resilient community

Houston’s strong economy provides the foundation for economic opportunity for residents, but we must identify levers to ensure all can build on that foundation. With over one million financially insecure households, and income growth lagging behind both state and national trends, we face real challenges. This is compounded by a significant portion of our community being unbanked or underbanked, along with a substantial percentage possessing subprime credit scores that contribute to a cycle of debt and financial insecurity.

An evaluation of two client-centered financial coaching programs, which focus on the goals set by participants, shows limited results, but promising signs of increased savings, on-time bill payments, and a reduction in certain types of debt. A review of other research suggests that the impact of financial coaching is promising but remains inconclusive due to challenges such as inconsistent practices and outcome measures. It is important to note that financial coaching differs from financial education. Financial education focuses on general financial literacy while coaching provides personalized guidance to help individuals achieve their financial goals. It is recommended that financial education should complement, not replace, financial coaching.

Family Self-Sufficiency (FSS) programs are also making an impact in bolstering the savings of individuals and families. These government-supported initiatives, often run by local housing authorities in partnership with nonprofits, pair residents of public housing with financial coaching, skills training, and supportive services. As participants earn more, the pay increased rent with an amount equivalent to this increase being placed in an escrow savings account. The participants will receive the full balance of this account once they complete the program. A quasi-experimental study of an FSS program found that program participants’ annual household income was 21% higher compared to the comparison group one to three years after enrolling in the program and 23% higher five years after enrollment. Additionally, the research suggests that program participants had less reliance on public assistance programs than the comparison group.

Alongside access to quality living-wage jobs and a supportive small business ecosystem, strengthening savings, improving credit history, and gaining access to quality credit in the traditional credit economy are crucial steps toward a brighter financial future for Houston’s financially insecure households. Together, these efforts can help individuals and families in our region, enhancing their financial resilience to better withstand setbacks, build long-term stability, and access opportunities for future growth.