Viewing all posts with tag: US Financial Diaries  

The Bail Trap: When a Lack of Savings Means Jail Time

Recently, The New York Times Magazine ran a feature on the bail process for petty crimes, with a focus on the Brooklyn, NY court system.  Although bail was historically set as a bond to ensure a defendant will return to court for trial, it is increasingly used as a tool for incarceration.  According to the article, at any given time, 450,000 individuals in the U.S. are held in detention awaiting trial because they were unable to pay their court-assigned bail.  A disproportionate number of these are poor.

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NYT: Unsteady Incomes Keep Millions of Workers Behind on Bills

Today, The New York Times featured research from the U.S. Financial Diaries as well as other sources to explore the issue of income volatility and how it is affecting the financial lives of Americans.  The complete article is available here.

For millions of Americans, including USFD households, income fluctuates monthly, weekly, and seasonally.  In fact, 61% of the time (for those in the study), there is a mismatch between spending needs and income flows.  According to principal investigator Jonathan Morduch, “This is a hidden inequality that often gets lost.”

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The Hidden Financial Lives of Working Americans

Today researchers and national experts will share early findings from the U.S. Financial Diaries (USFD) project, which tracked every dollar earned, spent, borrowed, saved, and shared by 235 low- and moderate-income households in five states over the course of a year—thus providing a powerful picture of how millions of Americans work to make ends meet.  At the event, you will have first access to USFD findings. . . 

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Thriving but Still Vulnerable in the US

The latest household profile from the U.S. Financial Diaries project presents the story of Mateo Valencia, 31, and Lucia Benitez, 30.  Mateo and Lucia are an unmarried couple currently living in Queens, New York after moving to the U.S. from Ecuador in 2005. They live with their four-year-old son Pablo in a three-bedroom, one-bathroom townhouse, and they rent out rooms to friends and relatives who are between homes or jobs. Mateo and Lucia are in many ways emblematic of the American immigrant experience. They came to the U.S. with hopes of building a better life and while they are not truly secure yet, they are finding opportunities. They each work multiple jobs and actively seek additional income earning opportunities. But Mateo and Lucia live much of their financial life outside the formal financial system. They deal primarily in cash, so there is little information to support a credit score and they do not have long-term savings or health insurance. Their undocumented status also undermines their ability to invest in the long-term . . . 

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New USFD Household Profile

Each of the U.S. Financial Diaries' Household Profiles presents the financial life of one family in the USFD study. While these families are not necessarily representative of the total sample, they illustrate recurring themes: households struggling with income volatility, unplanned expenses, and finding ways to save and invest, but also using creative–and sometimes counter intuitive–budget and money management strategies to help make ends meet. 

The latest profile focuses on Elena Navarro,  27-year-old woman living outside of San Jose, CA.  She has a bachelor’s degree and ambitions to attend law school. While Elena’s degree and experience qualify her for jobs that pay well above the poverty line, she lives close to the margin . . . 

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New USFD Household Profile Highlights Yearly Budgeting with Seasonal Income

Many of the households included in the U.S. Financial Diaries project operated on a weekly or monthly budget, balancing income and expenses in relatively short-term periods.  However, the subject of the latest household profile, provides an example of long-term, annual budgeting.

Sandra Young lives in Brooklyn with her grown children Tyler and Kayla. She manages several branches of a tax preparation agency, which means that she earns most of her income during the six months between November and April. Sandra has chosen an unusual structure for her financial life, and the seasonal nature of her income means that she has to budget over a longer time period than many households . . . 

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New From USFD: Profile of A Single Mom's Financial Balancing Act

The U.S. Financial Diaries project, a joint initiative of NYU Wagner’s Financial Access Initiative (FAI) and The Center for Financial Services Innovation (CFSI), reveals hard-to-see aspects of the financial lives of working Americans, providing new insight for the design of financial services policies, programs and products for a broad range of Americans. 

Each of the project's Household Profiles presents the financial life of one family in the USFD study. While these families are not necessarily representative of the total sample, they illustrate recurring themes: households struggling with income volatility, unplanned expenses, and finding ways to save and invest, but also using creative–and sometimes counter intuitive–budget and money management strategies to help make ends meet. . . . 

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USFD Project Releases New Report on Informal Finance

People run their financial lives with a variety of tools. The first tools that come to mind are likely to be formal, like checking accounts and credit cards. But households often use informal tools that are harder to see from outside, like short-term loans from friends or relatives. Some people use informal financial services because they lack access—or believe they lack access—to quality products or because they do not trust formal options. 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 . . . 

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FAI's Jonathan Morduch on "The Hidden Tragedy of the Poor"

Recently Upsides sat down with FAI’s Jonathan Morduch to discuss his views on the current state of microfinance and his current project – US Financial Diaries.  Morduch highlights that whether in the developing world or the US, the poor face many of the same financial struggles, which is why understanding money management strategies at the household level a crucial step to providing more effective financial services to the poor . . . 

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Every Dollar In, Every Dollar Out

Think back on the past year in your financial life: the money you received from work, loans or gifts, the purchases large and small, the bank deposits and withdrawals. Now imagine keeping track of every one of those transactions - regardless of your income level, it would be a mind-boggling endeavor.

Yet that's exactly what the U.S. Financial Diaries project has done . . . 

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“What’s in it for me?”: Putting Research to Practical Use

In mid-June the Stanford Social Innovation Review blogged the results of a survey they conducted. The survey’s purpose: to understand the role of academic research in the work of practitioners in a broad range of social, environmental and economic issue areas. Many of the 1,800 respondents described academic research as difficult to access, expensive, too narrow, and not relevant. Seventy percent cited the “difficulty of translating research findings into concrete action” as one of the reasons for a substantial gap between the two worlds.

The results of the survey brought to my mind strong words from former Freedom from Hunger CEO Chris Dunford about the usefulness and applicability of one specific type of academic research, randomized control trials . . . 

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FAI's Jonathan Morduch Delivers "WAGTalk" on US Financial Diaries

More than 200 alumni, students, faculty, staff, donors, and friends of NYU Wagner celebrated the school's 75th anniversary on Thursday, June 12. The celebration began with faculty presenting their research highlights, or "WAGTalks."  FAI's Jonathan Morduch kicked off the series with an overview of the US Financial Diaries (USFD) project and its relevance in today's current economic debates.  Jonathan emphasized that USFD provides a highly detailed, month-to-month picture of the financial lives of low-income Americans, which brings to light issues like income volatility that studies using annual income data are unable to catch.  See below to view Jonathan's full presentation and click here to watch the other WAGTalks in the series.

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Being Poor Above the Poverty Line

What does it mean to live between poverty and the middle class? In a multi-media report released last week, Al Jazeera America digs into the lives of 5 Californian families that "earn too much to receive most government benefits yet too little to reliably make ends meet."

The piece profiles families with income below the self-sufficiency standard, a measure developed by the University of Washington in the 1990s. The self-sufficiency standard varies from household to household. It takes into account regional cost-of-living, ages of household members, and all major budget items. More people live below this standard than the federal poverty line, which doesn't allow for geographic cost differences and is based on assumptions about only the food portion of household budgets. According to Al Jazeera's report, the average self-sufficiency standard for a family of 4 in California is an annual income of $63,979 while the federal poverty threshold is only $23,850 . .  

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Unhappy Tax Day for Some

Last week the New York Times highlighted a trend among low-income communities: people seeking tax prep at unregulated, sometimes fraudulent, pop-up shops. The article explains, "for millions of low-income Americans tax season means the biggest one-time influx of money all year." When preparers hand these customers a lump sum much larger than they're used to seeing on a daily basis, many filers don't think to check the numbers. After all, they sought a professional to do the work so they wouldn't have to . . . 

Low-income tax filers are vulnerable. 

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Who needs payday loans?

There’s a nice post on payday loans by New School professor Lisa Servon on the New Yorker Currency blog this week. She tells the story of Azlinah Tambu, a single mother in Oakland, CA who took out a series of payday loans, knowing she wouldn’t be able to pay them back on time and will end up repaying far more than she borrows. There’s no question Tambu is as informed a consumer of these types of loans as you could find: she has worked as a teller for a payday lender. In relating Tambu’s struggle to repay, Servon makes two really important and related points.

First, current debates focus too much on the need for regulation to curb the abusive practices of payday lenders rather than seeking to understand the financial lives and motives of the people taking out these loans, despite their high cost . . . 

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Overdraft as a Product, not a Penalty?

The Taylors overdraft their checking account every two weeks, on purpose.

As described in a recent issue brief published by the U.S. Financial Diaries, the Taylor family’s income level varies significantly from month to month. Sometimes it’s not enough to cover all of their expenses. So, they opened an account at a bank with a simple overdraft fee structure: One $35 charge per overdraft, no daily fees, and an allowance of up to $500 at a time. Since the Taylors typically make only one large cash withdrawal per paycheck – the entire amount of pay – this bank would charge them at most one $35 overdraft fee each cycle, if they happen to need more cash than the amount of that week’s direct deposit.

The Taylors use overdrafts as another household might swipe a credit card or take out a payday loan. Since their credit history eliminates the card option and they are already tied up with a payday lender, over-drafting becomes another logical – and probably more convenient – place for them to turn to stay on top of their bills. It’s clear that the family responded to and relies on their new bank's transparent behavior. They saw its fee policy, understood how they could manage it, and became a customer . . . 

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Under-savers Anonymous: A US Chapter?

As a field researcher collecting data for the US Financial Diaries project in Cincinnati, I interviewed 30 low-income families about the details of their household finances over 16 months. One question was always in my mind: What’s the difference between their financial lives and mine? And how might this comparison help design financial products for people who are struggling to make ends meet? One of the most important distinctions I identified was our vastly different abilities to save. For me, an unexpected $300 car repair might be a pain in the butt, sure – but I’m able to deal with it by dipping into my savings account. For USFD families, that same bill could throw the household into a mire of debt, stress, and embarrassment (not to mention lack of transportation).

My experience in the field lines up with data on the dismal savings rate in the US compared to other parts of the world. It speaks to the difficulty of putting aside money when very little is coming into a household in the first place, and it highlights the dearth of financial products offering effective carrots or sticks to boost Americans’ savings . . . 

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"Microcredit for Americans" - Is it all about the Score?

Buried at the bottom of Shaila Dewan's recent New York Times article on "Microcredit for Americans" is an idea that deserves much more attention:

Grameen helps its clients in another way that many experts say is more important than increasing income — it establishes good credit scores. Many poverty alleviation groups have shifted their focus from saving to credit building, because people with poor or no credit must leave large deposits for basic needs like utilities, have trouble renting decent housing, pay much higher interest rates and have a harder time finding jobs.

Nayrobi Gonzalez de Quiroz, 26, recently received her first Grameen loan but decided not to follow through with her plan to buy handbags for resale. After using about $200 to pay off a debt, she said, she decided it was safer to leave the money in the bank and make the payments from her earnings as a manicurist.

“Here, you have to have good credit,” she said. “I have a young son and I have to think about his future.

The choice by Nayrobi Gonzalez de Quiroz to not put her money in a business is familiar from other studies of how people use microcredit around the world, so it's not surprising to see it in the U.S. The more surprising idea is that microcredit may matter not because of anything having to do with any given loan and the possible returns on investment. The path of impact could run through impacts on credit scores. This is a phenomenon that is particular to the U.S. and other places where credit scores are part of the backbone of retail banking. One impact comes through the way that a better credit score makes access to banks easier, but credit scores are also used by employers in making hiring decisions, and landlords in making housing decisions. Having a better credit score is a big deal . . . 

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U.S. Financial Diaries: Webinar with Leading Experts

The U.S. Financial Diaries is a research project tracking more than 200 low- and moderate-income households over the course of a year, collecting highly detailed data on household financial activity. New York University’s Financial Access Initiative(FAI), CFSI, and Bankable Frontier Associates (BFA) recently released the Household Profiles. This series provides an intimate look into the financial lives of six households, exploring the ways these families are making ends meet . . . 

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Lessons from “No Slack: The Financial Lives of Low-Income Americans”

In 2005, a group of researchers at the University of Michigan set out to understand how people in low- and moderate-income households think about and use financial services. The Detroit Area Household Financial Services (DAHFS) study, headed by law professor and two-time Treasury official Michael Barr, included interviews with more than 1,000 randomly sampled residents of the Detroit metro area. No Slack: The Financial Lives of Low-Income Americans presents data and analysis from that study. Topics range from bank accounts to bankruptcy, from credit cards to tax refunds. Here are four brief—but important—take-aways.

1. Social ecosystem matters. In recent years, it’s become all the rage to add insights from psychology to economic models of how people make decisions—but social context matters, too . .  

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