A little help can go a long way.
A handful of studies found that when people get assistance after a natural or personal disaster, they are more likely to avoid bankruptcy, keep their debt under control, go back to work, and increase their earnings.
Those benefits also ripple outward to the greater community and employers, bolstering the reason the government and society at large invest in these targeted and much-needed assistance programs: to create a more resilient citizenry and local economies.
“Stuff happens in life,” said Justin Gallagher, associate professor of agricultural economics and economics at Montana State University and one of the study authors. “I feel that the role of government is, if something bad happens, there’s a very cost-effective way for the government to assist the citizens and help them get through this tough time.”
That takeaway is especially poignant now as the Southeast grapples with the fallout from Hurricane Helene that caused an estimated $15 billion to $26 billion in property damage, according to preliminary estimates from Moody’s Analytics.
Ben Colliers knows a little about a hurricane’s aftermath.
Colliers, an associate professor at Temple University’s Fox School of Business and Management, along with his colleagues investigated the federal disaster loan program that provides low-interest loans, primarily to individual households, Colliers said. They’re meant to cover damage that a homeowner’s insurance doesn’t cover.
Read more: What does home insurance not cover?
Not everyone qualifies for these loans. The cap on the debt-to-income ratio — what share of your monthly bills take up your monthly income — is 40%. So to compare similar groups, Colliers looked at the outcomes of homeowners who were just above that DTI cutoff and received no loan to those just below who got a loan.
The loans spanned from 2005 to 2013, capturing on the front end Hurricane Katrina that devastated the Gulf Coast and, on the back end, Superstorm Sandy that hammered New York and New Jersey. The average balance on the 20-year disaster loan was $42,000 with an interest rate of 2.7% and average monthly payment of $230.
The question for Colliers was if it was smart to lend to people who just experienced this disaster and all the expenses that came with it.
“Is there an opportunity for them to borrow their way out or is this just really setting them up for failure down the road?” he wondered.
The disparity of outcomes between those who got loans and those who didn’t was striking.
While the finances of both groups deteriorated following the disaster, the loans “dramatically reduced financial distress,” Colliers said, decreasing the likelihood of filing for bankruptcy by 61% versus the group that didn’t get a loan.
Credit delinquencies also were lower among the loan group.
On top of that, those who received loans were more likely to take on a new auto loan three years after the event, indicating that their creditworthiness remained intact and a sign that they were able to move on with their lives.
“For the government to step in and help facilitate reinvestment after these events seems to be very important for the finances of the people that receive these loans,” he said.
Read more: Does car insurance cover flood damage?
In another recent study examining disaster assistance, homeowners devastated by 34 tornadoes, including the deadliest one on record in Joplin, Mo., in 2011, found similar results.
The researchers zeroed in on tornadoes because, unlike hurricanes, not every tornado qualifies for federal disaster grants of up to $30,000. That allowed the researchers to see how communities fared after a tornado if they received aid versus those that didn’t. The randomness of damage that tornadoes inflict also provided the researchers the opportunity to compare neighbors who had divergent experiences.
“Tornadoes can cause tremendous damage, but it’s very localized. It’s almost like block by block or house by house,” Gallagher said.
Those who received aid had 30% less credit card debt post-disaster. Financially constrained households got a bigger boost. They were less likely to miss bill payments and their spending didn’t decrease following the disaster.
“For example, they’re able to repurchase vehicles that are damaged,” Gallagher said.
That’s not all. The local community also indirectly benefited from the aid. In areas where federal assistance was distributed, there were 9% more businesses and 14% more employees following the tornado. The survival rate of smaller businesses, those that employed three or fewer employees, benefited the most.
“If you give people money in the community, the businesses operating in those communities are likely to benefit,” Gallagher said. “So this interesting federal program aims to support disaster victims, but it has this larger community or regional impact.”
Not all calamities run into the tens of thousands of dollars, and interventions for smaller ones can provide profound benefits too — for both individuals and their greater community.
Along with colleagues, David Phillips and Kevin Rinz have run a series of studies with Catholic Charities in Chicago, which runs a hotline that helps pair individuals facing housing issues with organizations that provide aid. These one-time grants average one month of rent, and individuals must pass a screening to qualify. Specifically, their need must be a temporary problem, not persistent poverty or homelessness.
Not every eligible applicant receives a grant because the organizations providing the aid run out of funds, an outcome that allowed researchers to compare individuals who received assistance with similar people who didn’t because of unlucky timing.
What they found is that first, there are no negative effects on work — a common concern among some lawmakers who worry that assistance like this can be a disincentive to work. That’s not the case, according to this study.
In fact, among the lowest-income individuals in the study, those who received grants saw a bump-up in their annual earnings.
In previous studies on the same program, the researchers also found that these grants helped reduce how much these individuals used homeless shelters and reduced violent crime in the community.
“There are also broader benefits,” Rinz, senior fellow at the Washington Center for Equitable Growth, said. “So it’s not even just on the individual basis, it’s kind of a societal benefit as well.”
The naysayers out there may wonder why many of these individuals don’t have an emergency fund of their own saved up — or have insurance in the case of natural disasters. Then, they wouldn’t need to lean on outside resources when catastrophe strikes.
But the idea of emergency savings ignores the reality of some people’s circumstances. In the study looking at housing aid, the average income of the callers to the hotline was $12,000 a year, according to Phillips, a research professor of economics at the University of Notre Dame.
“It’s folks who are already working on a really tight budget. They’re often working in jobs that turn over frequently, they’re often working irregular shifts,” he said, making it harder to sock away for a rainy day.
In the tornado study, the researchers didn’t specifically look at insurance but noted that homeowners insurance — which is a requisite if you have a mortgage — does cover tornado damage. But other costs remain.
“It’s going to repair our house, but we might have an hourly job that doesn’t have time off and all these benefits,” Shawn Rohlin, a professor of economics at Kent State University, said. “So it’s probably why we find such a large effect [from the grants] at the bottom of the distribution.”
Homeowners who got disaster loans in the hurricane study also had insurance, which, on average, covered not even half of the $86,283 in average damages.
“People are underinsured for severe climate risks, and that leads to some important questions,” Colliers said. “How do you recover? How do you navigate repairs and get back to your normal life?”
A helping hand is needed.
Janna Herron is a Senior Columnist at Yahoo Finance. Follow her on X @JannaHerron.
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