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PRELIMINARY DATA - DO NOT CITE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PRELIMINARY DATA - DO NOT CITE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PRELIMINARY DATA - DO NOT CITE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