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How U.S. Families Cope With Financial Insecurity

A talk about fluctuating incomes with the co-author of 'The Financial Diaries'

By Richard Eisenberg

Managing your money is hard enough. But what if your income fluctuates so much that for more than five months of the year,  it’s 25 percent above or below your monthly average? That kind of roller-coaster financial insecurity is exactly what the authors of the book The Financial Diaries discovered while tracking the lives of 470 low- and moderate-income Americans in 235 households.

The groundbreaking study is from a team led by the book’s authors, Rachel Schneider, senior vice president at the Center for Financial Services Innovation (a nonprofit financial services consultancy), and Jonathan Morduch, a professor of public policy and economics at the New York University Wagner Graduate School of Public Service.

Among their other findings: only 8 percent of the households saved as much as their perceived need; 40 percent borrowed from friends and family and half of those with credit cards only made minimum monthly payments. As the authors wrote: “The families we met are not balancing on a high-wire so much as driving on a very rocky road, hitting bumps and potholes, getting slowed down, knocked off course and sometimes stopped entirely.”

I just interviewed Schneider to learn more about why incomes are fluctuating so much, what people are doing to cope and what employers and the government could do to help. Highlights:

Next Avenue: You wanted to study household cash flows. Why?

Rachel Schneider: There is a lot of information on how much in debt people are and what they spent money on. But we don’t know how they thought of the choice of whether to borrow versus save or how being indebted affects their spending choices. When you look at cash flow, you can put the pieces of the picture together. Seeing how money moves through somebody’s life gives different insights into what they’re struggling with and why.

Why does income fluctuate so much for so many low- and middle-income people?

Rachel Schneider, co-author of 'The Financial Diaries'

The labor market has transitioned in that way. There’s a lot of talk about the gig economy changing work, but our take was that this is much more broadscale.

About half the country works hourly, rather than on salary, where you don’t get paid if you don’t work. So the biggest sources of volatility we found fluctuated in the amount that people earned within the same job.

What can you say about the Financial Diaries households who were in their 50s and 60s?

Some people we got to know particularly well in their 50s and 60s were deeply knowledgeable about their spending and income, but nonetheless felt a lot of uncertainty about how it would play out for them in retirement.

Just being able to make the math work to cover current expenses didn’t make people feel economically secure.

One woman in your book was Janice Evans, a 55-year-old who works the night shift dealing cards at a Mississippi casino. What was her story?

She has a grown son and granddaughter living with her. Over the course of the year, Janice’s income swings nearly 30 percent between her highest paycheck and her lowest paycheck. She doesn’t know exactly how much she will make in a given week until after she receives her paycheck. She struggles and has to cut spending some months. This doesn’t mean no more lattes; it means buying less food.

What happens to people’s spending and saving when their income suddenly drops or they’re faced with an unexpected expense?

Most people’s planning horizons are nearer-term than experts want them to be. We [economic analysts] spend lot of time thinking how can we get people to spend less now, so they can save for retirement. But they’re saving for fluctuations in income or a car expense that’s around the corner.

Robert Hill, in the book, was making about $11 an hour working in tech support at a nonprofit and saving $25 a month for his 401(k). He knew that was not going to make a big difference, but he also knew he was supposed to save for retirement. He was saving much more actively, with bigger dollar amounts, for the money he needed for the first and last month’s deposit on an apartment. He was putting much more of his savings energy toward that, and that makes sense.

We have a false narrative that people are overspending and not saving for retirement. The reality is they have very real needs they have to pay for this year.

What did you learn about how people with fluctuating incomes handle debt?

Many smooth out their ups and downs of income and spending with debt, which is fundamentally what debt is designed to do. There’s nothing wrong with that. The problem is that it is very challenging for these people to know if the amount of credit they’ve taken out will be viable for them to repay. That is hard math for people to get right.

One woman said: 'I wish my credit card gave me points for paying it back instead of for spending. I wish I knew it was only lending me what they knew I could repay.'

What effects do big spikes and dips in income have on people, aside from the financial effects?

There is a lot of research showing that an increased stress level has a negative impact on people’s health. Financial well-being does impact physical well-being.

What are some of the best programs and ideas you found to help people whose incomes fluctuate dramatically?

One of the things I’m most excited about is the idea that more data and better predictive analytics can be used to help solve these problems. A technology company called Even is a powerful example of that.


The Even app links your checking account to it and monitors the ups and downs of your paycheck. When you have a paycheck that's lower than average, the app offers a "boost," by putting extra money into your account to bring you up to average. When you have a big paycheck, the app either pays back a prior boost or sends an alert asking if you want to save part of it. When people are given this kind of prompt, a lot of them will say ‘Yes.’

And an organization called Commonwealth teamed up with the prepaid card company Banking Up to offer the Rainy Day Reserve app. Users could segregate money into ‘spend’ and ‘save’ accounts. Once dollars were designated ‘save,’ the cardholder couldn’t spend them without first moving the funds back to ‘spend.’ And when customers wanted to move funds from the ‘save’ to the ‘spend’ account, they were shown a pop-up box asking them to confirm they really wanted to spend their savings.

The product that people want is help managing their financial ups and downs. That’s very different from the traditional ‘Here’s a bank account and a credit card. Do the best you can. Good luck.’

Why aren’t more banks and credit unions offering these kinds of solutions?

We’re seeing them realizing they need to pay attention to outcomes, not just products. I think there’s real momentum around that idea, but it’s hard and it requires banks and credit unions to really engage with their customers differently.

Some of the households you talked to came up with creative ways to cope with fluctuating income. Some were incredibly inventive savers. Can you talk about this?

For Becky in Ohio, instead of saving extra income in a savings account, she stocks up their pantry. Robert gives extra money to his mom to hold for him.

Sometimes people work together in savings groups [sometimes called lending circles]. The idea is that if you commit to a group of 10 or 20 people and everybody gives the same amount each week to the organizer, they all have incredible discipline and commitment.  Each member gets the entire pot once during the cycle; it helps people collaborate to turn small cash flows into large, useful chunks of money. Their feeling is: ‘I committed to people in this group and I will contribute because if I don’t, I’m not just letting myself down, I’m letting the group down.’

What would you like to see the government and employers do to help people with fluctuating incomes?

There’s so much, it’s almost too long a list. But one category of things they could do deals with scheduling and paid time off. People need greater predictability or control of their schedule.

San Francisco passed a Retail Worker Bill of Rights [among other things, it requires certain retail employers to post schedules at least two weeks in advance and workers get one hour of pay at their regular rate for schedule changes made with less than a week’s notice and two to four hours of pay for changes made with less than 24 hours’ notice]. A similar federal bill has been proposed.

Another thing would be to enable payments to workers to be made in real time. Currently, it takes several days for money to move through the payments network. That is extremely problematic for people who experience a lot of volatility and have no financial cushion. It introduces uncertainty into their planning and makes it hard for them to budget.

What advice would you offer to people whose incomes fluctuate wildly?

I’d say that people who are experiencing this are incredibly thoughtful and knowledgeable about how to manage their money. They know which bills can be paid late and which fees can be avoided and the best way to access cash when they need it.

But the ones who are the most successful are people who can get their arms around all their relevant financial information. When you do your budgeting, you need to look at the full month even though you need to budget week by week.

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Photograph of Richard Eisenberg
Richard Eisenberg is the former Senior Web Editor of the Money & Security and Work & Purpose channels of Next Avenue and former Managing Editor for the site. He is the author of "How to Avoid a Mid-Life Financial Crisis" and has been a personal finance editor at Money, Yahoo, Good Housekeeping, and CBS MoneyWatch. Read More
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