The Thirteenth Month Fund

by RachelSchneider

Almost a third of Americans say they are struggling or are just getting by, and 46% cannot easily pay for an unexpected expense of $400. This is not because they are profligate over spenders. It is because stagnant incomes and the rising cost of living have made it near impossible for middle and lower income families to put even a small savings cushion aside.

The mental toll of not having a cushion of any kind is real. Increased stress leads to poor physical health and worse outcomes for children, potentially including long-lasting, negative impacts on brain development. Financial shocks often measure in the hundreds of dollars, yet they can derail financially fragile households, draining savings and increasing debt. In 2014, almost 60 percent of U.S. households experienced at least one shock and over half of them struggled to make ends meet after the most expensive event, reporting increased hardship even a year later.

This growing set of data, which is consistent with what my colleagues and I found in the U.S. Financial Diaries project, tell us that many families are struggling to achieve stability. They work hard, often full-time, and they do their best to save and plan. Yet, the inherent volatility of their financial lives turns stability into a stretch goal, and makes mobility seem entirely out of reach.

So, what would happen if relatively small amounts of money were available to families at the right moment?

It is possible that small, well-timed distributions of money can have outsize impact on people’s lives. Therefore, it is worth exploring whether smaller payments are useful within the universal basic income framework. As an example, the Earned Income Tax Credit functions as a critical top-up on people’s incomes. For a typical value of $2,000–3,000, it creates a meaningful improvement in quality of life. What if everyone in the country had access to emergency funds when they need them most?

Think about this as enabling each adult to access an additional month of income. There would be no triggering event or documentation. Every adult would simply know that they can receive approximately $2,000 at a moment of need. That amount is roughly equivalent to a month’s pay at the poverty line for a family of four — hence, the “thirteenth month.” The actual amount would vary depending on household structure (number of dependents) and income — with lower income families being eligible for bigger payments. The thirteenth month could be paid for by structuring it as an insurance fund. All taxpayers would pay premiums, which would be graduated by income. This is far more do-able than offering a $12,000 universal basic income, but it creates the infrastructure that would enable expansion over time. And it does so while meeting an urgent, real financial need — access to the right money at the right time.

The infrastructure to distribute funds electronically to all Americans already exists. Almost all federal benefits are direct deposited into recipients’ bank accounts. Those who do not have bank accounts receive Direct Express prepaid cards to access their funds. All that is needed operationally is to build the infrastructure to enable recipients to request their funds when they need them — a simple website that allows a struggling, stressed person to raise their hand and say “I need some help now, please.”

This is the eighth piece in a series of pitches written for the Economic Security Project’s first design workshop on basic income held last spring. We are sharing these pieces in the lead up to the Economic Security Project’s first ever Cash Conference on Thursday October 19th in San Francisco. RSVP to attend here.