Ups and Downsin American Financial Lives
Jonathan MorduchNovember, 2014
PRELIMINARY DATA - DO NOT CITE
Leadership
• Jonathan Morduch, Professor of Public Policy and Economics, New York University
• Rachel Schneider, Senior Vice President, Insights and Analytics, Center for Financial Services innovation
Principal Investigators
The US financial diaries were created jointly by the NYU Financial Access Initiative, the Center for Financial Services Innovation, and Bankable Frontier Associates.
Daryl Collins Director
Nancy CastilloUSFD Manager
Timothy Ogden Managing Director
PRELIMINARY DATA - DO NOT CITE
Sponsorship
Leadership support for the project is provided by the Ford Foundation and the Citi Foundation, with additional support
and guidance from the Omidyar Network.
Life-time ups and downs
10 20 30 40 50 60 70 80 Age
Month-to-month ups and downs
10 20 30 40 50 60 70 80
Problem: We have annual data mostly
Life is lived day to day, month to month
• High frequency economic and financial data
– Interviews every 2-4 weeks over a year
• A view into hard-to-see strategies
US Financial Diaries
PRELIMINARY DATA - DO NOT CITE
US Financial Diaries
Empirical Progression
Income Assets Cash flow
12
300,000
cash flows collected during the year. About 100 spending categories, 38 income types, 69 financial instruments.
460,000 answers to survey questions on health, financial literacy,
time preference, organization, tax refunds, financial instruments, aspirations, income patterns
Garza Family Income, N. California
13
14
Turn to pawn shops, costly loans
Garza Family Income
Sandra Young, Brooklyn NY Johnson Family, Ohio
Hossein Family, Queens NY Adrian Family, Mississippi
Few families have steady income
IncomeMedian
- 25%
+ 25%
Spikes and dips: definition
Median
- 25%
+ 25%
Spike
Dip
4 per year on average
Median
- 25%
+25%
Typical causes
• Work-hours rising and falling.• Health problems• Household membership: New children,
adults. Children, adults leaving.• Childcare and transportation needs.• Lumpy gifts and benefits
Mismatch
39% of spending spikes align with an income spike
61% with no income spike
25% when income is below median
IncomeSpending
Spending > income: 97% of households had at least one month with excess spending
Overdrafts: 48% had one in the last year (if had checking account); 23% had two +
Not Much Slack
Credit cards
78% not paid in full each month
34% had a card near its maximum
Not Much Slack
Probability of a 25% income dropConsecutive months: the percent difference from one month to the next
Economic Inequalities
IncomeWealth
Steady, reliable, predictable finances
Q: Which of the following is more important to you?
A. Financial StabilityB. Moving up the income ladder
Pew Survey (2011): Sample 2000 Households
Stability vs. Ladder-Climbing
Series1
85%
13%3%
Financial stability Moving up the income ladder Not sure/don't know
Dealing with Income Ups and Downs
Not sufficient:Financial literacy
BudgetingBehavioral tricks and “nudges”
Needed: Good jobs
Tools for Financial emergencies
Putting together lump sumsGrabbing and holding onto spikes
Enhancing control
New York Times Bestseller Summer 2014
Income share of the top 10%
1910 1930 1950 1970 1990 2010
1945 1970
1929
35%
48%
41%
Income share of the top 10%, US
2010
US Poverty Rate, 1959-2010
1970 2010
The missing part of the story
Year-to-year and month-to-month volatility has been rising too
Challenge and opportunity for credit unions
Thank you
www.usfinancialdiaries.org
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