Everyone agrees that Americans don’t have enough emergency savings (or retirement savings for that matter). But the idea behind emergency savings, and the way savings are measured, hides what low- and moderate-American households need savings for, and how much they are really saving. Households are saving for near-term small “emergencies.” And those emergencies—months where income is well below normal, or expenses spike above normal—happen so often that it prevents households from building up larger amounts for larger emergencies.
Discussion about how and how much low- and moderate-income households save is hampered by the fact that key terms are fuzzy. How long does money have to be set aside before it is considered saving? Are savings account balances an accurate representation of savings behavior? For the households we studied short-term savings dominates long-term savings. Many households seem to be setting aside substantial amounts of their income, but spending down these savings within the year. Short-term saving has not received adequate attention in programs and policies for lower-income households.
An Invisible Finance Sector: How Households Use Financial Tools of Their Own Making
Households often use informal tools that are harder to see from outside, like short-term loans from friends or relatives. It’s tempting to think that these informal tools are last resorts, or second-best solutions, but informal financial mechanisms are often combined with formal tools, and sometimes are preferred. This issue brief explains what informal finance is and how informal savings and borrowing tools are used; some reasons why people use such informal tools; the benefits, costs and limits of informal finance; and the implications of these findings for financial services providers and policymakers.
Spikes and Dips: How Income Uncertainty Affects Households
When asked whether “financial stability” or “moving up the income ladder” is more important, 77% of USFD participants chose “financial stability.” This response illustrates the high level of financial uncertainty and unpredictability that these households face. This research note focuses on how people earn and receive income and explores the concept of income uncertainty through the stories of two households, both of which use a variety of financial instruments and other strategies to cope with income ebbs and flows.
USFD Methodology: The Financial Lives of Low-Income Americans
USFD employs a methodology that combines quantitative and qualitative research. By observing household finances over long periods of time and at frequent intervals, the data represents detailed financial information from participating families. This brief provides an in-depth look into this methodology and an introduction to project-specific topics such as household assets and debts, cash flows, employment, financial goals, and general attitudes about money.