The US Financial Diaries collected cash flow data and household details to help understand how low- and moderate income American families manage their finances and their lives week-to-week and month-to-month over the course of a year. The study offers insight, via a combination of data and stories, into the ways in which households’ financial positions shift over time, and how peoples’ financial choices influence—and are influenced by—other aspects of their lives. This issue brief explains the USFD methodology, our sample, and our analytic approach.

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.

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.