America s Economic Anxiety

Transcription

1 America s Economic Anxiety The financial lives of low- and moderate-income households Jonathan Morduch NYU

2 Jonathan Morduch, NYU Rachel Schneider, CFSI

3 US Financial Diaries Principal Investigators Jonathan Morduch, Professor of Public Policy and Economics, New York University Rachel Schneider, Senior Vice President, Insights and Analytics, Center for Financial Services innovation www. USfinancialdiaries.org, 2011

4 Income share of the top 10% Income share of the top 10%, U.S. 48% % 35% 1970 Union decline Automation, Globalization Great Society Legislation

5 Insecurity (version 1) Economically significant increase in household income volatility 60 Standard Deviation of Household Income Growth % higher than in year moving averages of 2-year changes. Source: Dynan, Elmendorf, and Sichel

6

7 Great Job Shift

8 % change in employment share, Lower Skill Service (e.g. food service, personal care) Mid-Skill (e.g. repair, manufacturing, clerical, admin) High Skill (e.g. technical, managerial) Bottom quintile <$22K Middle 60% $22K-$40K Top quintile >$40K The Great Job Shift

9 Problem: We have annual data mostly

10 Life is lived day to day, month to month

11 Empirical Progression US Financial Diaries High-frequency data Households surveyed every 2-4 weeks INCOME ASSETS CASH FLOW 244 Households 316,763 cash flows 100 spending categories 38 income types 69 financial instruments

12 Photo: Demetrius Freeman Photo: Robin Holland Photo Credit: Juan Carlos Photo: Robin Holland Photo: Demetrius Freeman Photo Credit: Juan Carlos Photo: Whitten Sabbatini Household Diaries

13 235 Households PRELIMINARY DATA - DO NOT CITE

14 INCOME ASSETS CASH FLOW

15 Insecurity (version 2) Becky and Jeremy Moore SW Ohio Photo Credit: Demetrius Freeman

16 Becky and Jeremy Annual income: $35,000 Four children Rural Ohio $4,000 $3,000 $2,000 $1,000 Monthly Income and Spending (without tax time) Income Spending $- U.S. Financial Diaries

17 2.2 spikes + 25% Average Income - 25% 2.4 dips Steady jobs without steady pay

18 Percent of Households Self-reported month to month income variability SHED - Federal Reserve, 2013 Survey of Household Economics and Decisionmaking (7/14) 40% Often varies quite a bit from one month to the next 30% 20% 10% 0% Some unusually high or low months Annual Income SHED: Implemented in 9/2013. Nationally-representative sample. Online panel of 50,000 individuals sampled randomly. 6,912 asked to take the survey. About 60% (4,134) agreed. Quick survey (19 minutes median time) 18

19 Old assumption: The life cycle

20 Old assumption: Slow & Steady Assumes liquidity, basic stability

21 Q: Which of the following is more important to you? A. Financial Stability B. Moving up the income ladder

22 Macon and Columbus, August 2013, Photo: Whitten Sabbatini Eastern Mississippi

23 Janice Evans

24 Janice s financial year

25 Income Spending Mismatch

26 Instability: Life events Big needs, sometimes unexpected Examples Income: Missed an important source of money coming in that he/she was counting on Transportation: Vehicle maintenance or repair payment above $100 % of Households 51% 47%

27 Steady Income and Expenses OKAY Unsteady STRUGGLING Unprotected Strong Coping Mechanisms A Hidden Inequality

28 Not Much Slack 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 + Credit cards: 78% not paid in full each month Credit cards: 34% had a card near its maximum

29 % of respondents Coping with an Emergency Expense 2015 Survey of Household Economics and Decision-making (SHED) How would you pay for a $400 emergency expense? 28% 11% 6% 4% Wouldn't be able to cover it 47% 44% 38% 36% 3% 21% Would have to borrow or sell something Less than $25k $25k - $50k $50k - $75k $75k - $100k Over $100k Income level Federal Reserve, SHED Sample size n=5,591 30

30 % of respondents Coping with a Long-Term Shock 2015 Survey of Household Economics and Decision-making (SHED) Could you meet three months of expenses without income? 59% 39% 27% 23% 17% No 16% 21% 23% 24% 20% Yes, but no rainy day fund Less than $25k $25k - $50k $50k - $75k $75k - $100k Income level Over $100k Federal Reserve, SHED Sample size n=5,592 31

31 Health and finance

32 Medication non-compliance Household heads self-reports, to save money TOTAL 27% UNINSURED INSURED 21% 46% 1 OR MORE CHRONIC CONDITIONS NO CHRONIC CONDITIONS 9% 34% <$25,000 $25,000-$50,000 $50,000-$75,000 $75,000-$100,000 >$100,000 0% 18% 19% 33% 40% <101% % 151%-201% >201% 18% 26% 29% 36%

33 Noncompliance DELAYED FILLING PRESCRIPTION 18% 22% 34% TOOK LESS MEDICINE 13% 21% 44% SKIPPED DOSES 16% 21% 38% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% Total Uninsured Insured

34 Cost-cutting steps ASKED DOCTOR FOR LOWER COST MEDICATION 25% 28% 39% USED ALTERNATIVE THERAPIES 16% 20% 15% BOUGHT PRESCRIPTION FROM ANOTHER COUNTRY 4% 6% 3% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% Total Uninsured Insured

35 Results of delaying or not getting care Nothing Went to doctor later Multiple happenings Lost days at work Ended up in ER and was treated Do not know Ended up in ER and was admitted to the hospital Went to urgent care center later Lost pay 4% 1% 1% 1% 1% 9% 10% 25% 47% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

36 Now Soon Later

37 Overspending now Saving for Soon Saving for Later

38 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 85% 44% Checking: 92% spent within a year Savings: 61% spent within a year 7% 23% 17% 5% 16% 3% <6 months 6-12 months 1-3 years 3+ years Checking accounts (87% of households have) Savings accounts (65% of households have) Most savings are spent soon

39 Day-to-day cash flow management Short-term smoothing Emergency saving Retirement funds College funds Housing saving Sooner Later

40 Day-to-day cash flow management Short-term smoothing Emergency saving Retirement funds College funds Housing saving Sooner Later What happens when saving is imperfect but urgent needs arise?

41 Day-to-day cash flow management Short-term smoothing Emergency saving Retirement funds College funds Housing saving Flexibility Structure

42 Now Soon Later

43 Census: Modal income is around poverty lines Distribution of Household Income

44 Near poor Percent below federal poverty line and < 200% of the poverty line, Under 200% of federal poverty line (107m) % = 59m Under federal poverty line (47m) Source: U.S. Bureau of the Census, Current Population Survey, Annual Social and Economic Supplements. 45

45 32% 2X SPM 3 months 94% 56% 1.5X SPM SPM 92% 4 months 1.6 months Sometimes Poor

46 50% 25% 44% 72% of spells < 1 year 2-4 months 19% 5-8 months 9% 9-12 months Length of poverty spells, US US Census SIPP,

47 Chronic and Episodic poverty, Ashley Edwards. Dynamics of Economic Well-Being: Poverty, US Census Bureau. January % 29% 9% 45% 10 million 90 million

48 Steady Income and Expenses OKAY Unsteady STRUGGLING Unprotected Strong Coping Mechanisms Ways to improve

49 Jonathan Morduch, NYU Rachel Schneider, CFSI