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The Consumer Financial Fragility Index (IFFC as it’s known in Spanish) produced by the economic research firm Estudios Técnicos Inc. (ETI) indicates a decline in the financial health of consumers starting in the first quarter of 2023, with the index increasing from 35% to 49% by the third quarter of 2024.
Economist Leslie Adames, who leads ETI’s Economic Analysis and Policy Division, pointed out that “Puerto Rican consumers have moved from a state of severe financial fragility in 2000 to a moderate level in recent years. The index reached a high of 78% in the second quarter of 2020 but saw notable improvements in the following quarters, averaging 39% from the first quarter of 2021 to the third quarter of 2023.”
Adames credited the reduction in financial fragility among consumers during this timeframe to the injection of over $16 billion in federal fiscal stimulus during the COVID-19 pandemic, job market recovery, and the stabilization of delinquency rates on consumer loans. This was aided by using a portion of the one-time federal stimulus funds to settle outstanding debts.
The IFFC evaluates five factors to measure the financial situation of consumers: average delinquency rates on consumer loans, average delinquency rates on mortgage loans, unemployment rates, personal bankruptcies, and annual inflation-adjusted income for workers. The index is categorized into ranges: 0-25 (low financial fragility), 26-50 (moderate financial fragility), 51-75 (high financial fragility), and 76-100 (extreme financial fragility).
Adames observed that the IFFC has worsened over the past four quarters, surpassing the 40% average from the first quarter of 2021 to the third quarter of 2023. This index averaged 50% in the last four quarters, with the latest figure being 49% for the third quarter. This trend reflects the challenges consumers are encountering in repaying loans to local financial institutions.
Delinquency on consumer loans (such as cards, personal loans, and vehicle loans) at commercial banks increased from 2.74% in Q1 2024 to 3.12% in Q3 2024. Delinquency rates for each type of loan have risen above pre-pandemic levels as of Q4 2019. For example, the consumer loan portfolio recorded a rate of 3.33% in Q3 2024 compared to 2.98% in Q4 2019, credit card loans saw a rise to 2.51% from 1.87%, and auto loans increased to 3.52% from 3.00%. Additionally, total bankruptcies rose from 2,138 in Q3 2023 to 2,777 during the same period in 2024.
Although labor market conditions are positive and private sector worker income growth has outpaced inflation, the concerning trends in other components of the index highlight significant risks for 2025. The reduction of extra consumer liquidity due to federal stimulus effects and mounting debt, especially in credit cards, raises alarms. These factors, in the context of prevailing market interest rates, may greatly affect consumer financial fragility.
Adames stated, “we need to keep a close watch on developments in 2025, including the proposed rate increase policy by President-elect Donald Trump, the possible approval of LUMA’s rate adjustment request, and the Electric Power Authority’s debt restructuring outcomes, along with their implications on electricity costs.”
