One of the advantages of the US Financial Diaries project is the rich, detailed financial data from our households. By observing household finances over long periods of time and at frequent intervals, we are able to observe cash flows and behavior that would otherwise be hidden if we had only looked at income on an annual basis. One of the more striking findings from this data is that while poor households are saving, they 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 or long-term needs.
The graphic below illustrates how this process works by following one family as they build up and spend down their savings. A pdf version is also available for download here.