The voices of Urban Institute's researchers and staff
October 13, 2016

Detroit’s financial future is looking up, but residents have a long way to go

Detroit’s finances are in recovery. New partnerships between nonprofits, foundations, private businesses, and the city government are moving Detroit toward reforms and progress. But the city’s long-term residents still need assistance to rebuild their financial lives.

The financial health of long-term residents—roughly 80 percent of whom are black—cannot be separated from the city’s and region’s past. Throughout the 20th century, redlining prevented many residents of color from owning homes, and real estate agents and neighborhood associations steered black families into certain neighborhoods, perpetuating residential segregation.

More recently, predatory loans were offered disproportionately to borrowers of color. Black families missed out on home equity they might have accrued, harming their economic mobility and ability to transfer that wealth to the next generation. The effects of these practices are still evident in the financial struggles of residents today, contributing to patterns of disadvantage.

A new Urban Institute brief shines a light on the financial health of Detroit’s residents, using credit bureau data. Our analysis reveals that 62 percent of Detroit residents have a subprime credit score (600 or below), and the median credit score is 552.

Consumers with a low credit score can have trouble getting access to credit (e.g., credit cards or loans) or may only be offered credit with poor terms (e.g., high interest rates). Beyond credit scores, the information on consumers’ credit reports can be used in employment and hiring, rental, and insurance decisions, all of which can influence financial health.

Taking a closer look within Detroit, the map below shows that all but 1 of the 27 Detroit zip codes have a median credit score in the subprime range—600 or below. The only zip code with a median credit score in the near-prime range is downtown, where an influx of young, white, and more affluent people (with higher incomes and college degrees) have moved from across Michigan and the United States over the past five years. As Detroit rebuilds, it is important to remember the needs of long-term residents, many of whom are struggling.

Detroit map

The map also provides a striking comparison between the city of Detroit and the Detroit metro area. Credit scores outside the city but within the metro area are substantially higher than those within the city: fewer than 6 percent of the zip codes in the surrounding metro have a median score of 600 or below. The city and the surrounding metro area differ in other ways as well: the metro area has a substantially lower poverty rate, a higher share of the population with a college degree, and a higher share of white families, compared with the city.

The financial health of residents matters for the city’s health

Families’ financial health makes a difference beyond the walls of the family home. The financial health of Detroit residents matters for the city’s health, as financially healthy families can better contribute to the local economy and city revenue, and are less likely to need city supports.  

Thus, efforts to improve residents’ financial health can help residents and the city. Integrating financial capability into public programs provides an opportunity to "meet families where they are” and address consumers' multiple needs. Employment and training programs, for example, could also address residents’ household budgets and help residents better understand their credit report. Direct city investments to help residents build savings, particularly at tax time, could improve residents’ financial health and stability.

In addition, programs not specifically targeted toward financial health can help families, especially black families who compose most of Detroit’s residents and have lived through the ups and downs of the city’s recent financial troubles. Such programs include the Entrepreneurs of Color fund that offers loans to small minority businesses, blight elimination projects that have increased home values and neighborhood safety, and new public transit options that may help residents access new job opportunities. These investments have the potential to deliver long-term payoffs to Detroit’s residents and to the city. 

The work released today is part of an ongoing collaboration between the Urban Institute and JPMorgan Chase to inform and assess JPMorgan Chase’s philanthropic investments in key initiatives. One of these is financial capability, a multipronged effort to improve household and community financial health by identifying, supporting, and scaling innovative solutions that help low- and moderate-income families increase savings, improve credit, and build assets. This brief accompanies a broader portfolio of products focused on Detroit, which aims to bring data and evidence to support efforts to accelerate Detroit’s economic recovery and strengthen its communities. 

In this photo taken Feb. 23, 2010, David Hardin, 60, looks out his front door in the City Airport area of Detroit. Photo by Carlos Osorio/AP

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