Why 4 Arizona cities have emerged as havens from financial stress

• A February study from WalletHub examined the 100 largest US cities' levels of "financial distress."
• Arizona boasts four cities with stronger local economies, compared to the rest of the US.
• Major economic hubs Chicago, Houston, and New York rank as the most financially distressed cities.

While the US economy is improving, many Americans are still struggling with high home prices and growing debt. However, residents in Arizona's largest cities are doing much better than the rest of the country.

A February study from WalletHub, a personal finance company, examined the 100 largest US cities and calculated the level of "financial distress" for each.

Four Arizona cities ranked among the nine metros with the least financially stressed residents, contrasting sharply with the cities that emerged as home to the most distressed people — Chicago, Houston, and New York.

The study looked at several data points from the U.S. Census Bureau, Administrative Office of the U.S. Courts, Google Ads, and WalletHub, including residents' credit scores, debt accounts in distress, and bankruptcy filings. WalletHub ranked all cities in each category and calculated a total "financial distress" score.

Boise, Idaho, ranked as the top city in terms of being least financially distressed. Arizona claimed the next three spots, with Scottsdale in second place, Gilbert in third, and Chandler in fourth. Glendale was also among the top 10 at No. 9.

Interestingly, in an earlier WalletHub study that looked at financial distress at the state level, Arizona ranked just 16th least burdened. This suggests that larger cities like Glendale and Scottsdale are not only bucking the national trend but are also doing much better than the rest of the state.

"Cities such as Scottsdale and Glendale in Arizona are distinct from other parts of the state due to several reasons, including economic diversity, job prospects, and local policies," WalletHub analyst Cassandra Happe told Business Insider. "These cities have strong local economies, lower unemployment rates, and better access to financial resources compared to other areas in the state."

It also didn't hurt that Glendale hosted the 2023 Super Bowl, which was believed to have a $1.3 billion economic impact on the local community.

Major economic hubs like New York and Chicago are among the most distressed

Chicago tops the list as the most financially distressed city, ranking last or next-to-last in four categories, including accounts in distress.

Houston and New York follow, burdened by high bankruptcy filings and a substantial share of residents with distressed accounts. These cities' financial woes underscore the broader economic challenges, from unemployment to high living costs, that add stress to the residents' financial difficulties.

Happe noted that residents face several economic challenges, including the cost of living, unemployment, underemployment, and high levels of debt, which can lead to a distress level that is difficult to escape.

"Cities with higher distress levels often struggle with reduced consumer spending, limited access to credit, and slower economic growth, which can further exacerbate their financial difficulties," Happe said.

"The cost of living can also significantly impact distress levels, as seen in cities like Chicago, where factors such as increased bankruptcy filings and high levels of financial distress coincide with the challenges of living expenses."

The five most distressed cities, which also include No. 4 Los Angeles and No. 5 Dallas, would all typically be considered major economic hubs. However, Happe explained that the economic conditions of the past two years, including high inflation and soaring interest rates, led to significant increases in financial stress factors, suggesting that these metropolitan areas suffered more than others under the rocky economic conditions.

How some cities are alleviating financial distress

Arizona's largest cities have become a model for financial stability in a post-pandemic economy, instituting policies designed to address recent financial hardships.

In one example, while the US deals with rents at near-record levels, Scottsdale eliminated the city tax on rental properties, designed to keep rent prices more manageable. Meanwhile, Gilbert has become a top destination for younger Americans thanks to programs designed to incentivize small businesses such as income and capital gains tax credits.

Cities hoping to improve the financial conditions of their residents can aim to be more like their counterparts in Arizona. According to Happe, several proactive steps can be taken, including promoting debt management and encouraging better budgeting practices.

"Cities can also take measures to discourage predatory lending practices and facilitate resources for debt consolidation, ensuring that residents have access to sustainable solutions for managing their finances," Happe said.