Additional Q&A from SSIRLive! Hidden Financial Lives Webinar

By Tim Ogden

We had many, many questions on the first webinar in the Hidden Financial Lives series that we weren’t able to get to during the time allowed. Over the next few weeks, I’ll be answering some of those questions here.

By way of introduction, my name is Tim Ogden, and I’m the managing director of the US Financial Diaries project. In some of the answers, I’ll be sharing my own opinions rather than official positions or findings of the USFD project and I’ll be explicit about that.

Before launching into specific questions, I’ll note that many of the queries were about suggested changes to existing policies or programs or already extant innovative products or programs to deal with the issues we discussed. That is the focus of the second webinar coming up on February 4th. Register here if you haven’t already.

In that webinar we’ll talk about general design principles for innovations to address the new challenges that American households face, and look at promising innovations or ideas in financial services products, programs and policies for shoring up short-term financial security.

We structured the webinars this way — split between research and innovations to address the new challenges — because we felt it was important to give enough time to provide a reasonably detailed understanding of the research before delving into possible courses of action. Financial lives are complex enough that the old chestnut, “Don’t just do something, stand there and think,” holds.

Another common question was about segmenting the data in the various studies — looking at, for instance, differences in education, region, race, and gender. There is much more depth in each of the studies than we were able to present on the webinar. You can visit the websites of each of the webinar presenters to access more detailed information, and to keep track of additional research as it is published:

The US Financial Diaries

$2.00 A Day: Living on Almost Nothing in America

Pew’s Financial Security and Mobility Program

The US Financial Diaries has a research alert list you can sign up for (top left of the home page) to be notified whenever new research is available. There are also other sources of data, some of which are detailed in this blog post.

In the US Financial Diaries study we followed 235 households from 10 different demographic profiles in four locations. But the nature of the financial diaries methodology prevents us from having fully representative samples. In other words, while we do sometimes break out data by location, race or immigration status (for instance), it’s important to use caution interpreting that data.

Now on to some specific questions:

1) “Are there easily identifiable means that low-to-middle-income households use to weather volatile income/spending periods?”

In short, yes. First, as you can see in our Savings Horizons and Emergency Savings briefs (and in this video or this infographic), the households we followed are saving a lot to compensate for income dips. But these savings are not building up and being held — so they don’t show up in typical measures of savings rates or savings balances. They are being spent down within the year. This spring we’ll be publishing some research on how households managed expense spikes. One quick headline — it was mostly by spending down their short-term savings and borrowing from friends and family (what we call informal loans). Borrowing from formal sources, be it credit cards, home equity loans or alternative financial services like payday loans or pawn shops was less common. You can read a lot more about how households use informal mechanisms as part of managing their financial lives in our Informal Finance brief.

2) “Did any of the families in your study use pay day loans, pawn shops, with unrealistic high interest rates and no possibility of ever repaying the loans?”

There were plenty of examples of households using alternative financial services like payday, pawn and store credit. However it wasn’t as common as I think we expected at the outset. Certainly the fact that a large portion of our total sample was in New York, were payday lending is barred contributed to the relatively low prevalence of payday borrowing in our study. You can hear about two of the families in the study and how alternative financial services helped or hurt them in this brief video.

You can also see a lot more about the use of various financial services — formal, alternative, informal, etc. –in the charts in this deck.

I’ll be posting answers to more questions from the SSIRLive! webinars in the coming days. Feel free to add yours in the comments here or on LinkedIn.

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