New Book Calls for Polices that Address Financial Instability

By Amber Blatt, Policy & Advocacy Intern

 Deep within the American Dream lies the belief that hard work and steady saving will ensure a comfortable retirement and a better life for one’s children. But in a nation experiencing unprecedented prosperity, even for many families who seem to be doing everything right, this ideal is still out of reach.

-The Financial Diaries: How American Families Cope in a World of Uncertainty

We recently participated in a discussion with CSFI, Citi, and Chicago community leaders about the book, The Financial Diaries: How American Families Cope in a World of Uncertainty. Based on the experiences of families across America, the book pushes financial volatility into the forefront of conversations about family wellbeing. The book shares the findings of a yearlong quantitative and qualitative study conducted by Jonathan Morduch and Rachel Schneider of 235 households, detailing their cash flow, employment, financial instruments, assets, debts, and attitudes about money. Read more about the families who participated in the research.

Worlds of Uncertainty

The research revealed financial insecurity – specifically the unpredictability of income and expenses – to be the most significant barrier to families’ ability to prosper. This instability creates cash flow challenges and causes families to move in and out of poverty throughout the year. In a poll conducted by Pew Charitable Trusts, families preferred to have financial stability to increased income. The spikes and dips in income affect families’ ability to save for long-term goals and result in only having enough saved for smaller, near-term emergencies. The unpredictability of the next paycheck leaves families having to make tough trade-offs – paying some bills each month, while being forced to leave other bills unpaid.

Twenty percent of households with incomes lower than $25,000 saw extreme income volatility. Although changes in household employment accounted for some of the volatility, most shifts in income came from payment inconsistencies within the same job.

How Families Cope

Without a steady income, individuals find other ways to endure hard financial times such as saving, borrowing, and sharing. People are creative in their approaches, but without systemic change, those strategies are temporary solutions that only allow families to barely scrape by.

To account for the months with lower than average income, families use coupons, borrow from relatives, delay paying bills, and deplete previous months’ savings, among other tactics. Emergency funds are often used almost as fast as they were saved. Families frequently opened credit cards or sought loans that resulted in lower credit scores, additional debt, and another bill to pay.

While families engage in countless strategies to successfully get by, the stress of managing unpredictable finances takes a toll.

New Ways of Seeing

The authors offer a handful of policy solutions. Some proposed solutions would share the risk more fairly among individuals, businesses, and the government, such as legislation that would establish predictable scheduling, adequate hours, and higher wages.

To supplement enhanced job protections, the social safety net should be strengthened. The research found that households frequently move in and out of poverty; safety net programs such as the Supplemental Nutrition Assistance Program (SNAP) and Temporary Assistance for Needy Families (TANF) should recognize and be responsive to this dynamic by updating their application and recertification processes to ensure that individuals do not lose critical food and cash assistance due to their volatile, unpredictable financial situations.

Other proposed solutions would increase access to income from work. With more workers receiving electronic payments, quicker access to earning, such as same-day or weekly paychecks, could help families manage their finances. Savings options, including retirement savings, should offer the ability to withdraw funds for an emergency with no penalty.

Solutions to ending poverty often look solely at increasing income. These solutions are essential, but ignore the reality that many families need not just more income, but predictable income.

We will continue to work with our partners in Illinois to advocate for solutions that are responsive to the needs of families who are struggling to make ends meet.  Read more about our policy priorities.

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