Why Millions of Americans Still Live Paycheck-to-Paycheck

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America's economy is in pretty good shape. You've got an unemployment rate of four point four percent, jobless claims around the lowest in three decades, wage is US starting to rise, and g d P is growing about as fast as economists ps I can go. Right now, That's right, Dan, But underneath that veneer of a decent economy, millions of middle class Americans face a stressful reality, even if they

have steady jobs. Their paychecks increasingly have pretty big swings for month to month, making it challenging to pay bills, not to mention, build up savings, to deal with unexpected expenses, and things like that. Today on Benchmark, we're going to talk with the two authors of a new book who studied the financial habits of more than two hundred families for a year. If you think that hard work is all you need to achieve the American dream, you are

in for a surprise. I'm Scott Landman, an economics editor with Boomberg in Washington, and I'm Daniel Moss, executive editor for Global Economics with Bloomberg in New York. So, Dan, I think we've we've both worked at Bloomberg for a pretty long time. Uh, eighteen years for me and how many is it for you now? Twenty three? Wow? Well, I suspect we're both grateful for many of the things

that Bloomberg provides. But after reading this book, I realized that I take something for granted that lots of people just don't have, and that's a steady paycheck, which really isn't what people who have hourly jobs get, or if they work on commissions or get paid by the gig, so on and so forth. But hang on, I thought the gig economy was the trendy, buzzy thing to do these days. It might be trendy and buzzy, but it doesn't necessarily help people get a steady income. It just

kind of maybe works for other kinds of work. Is that another way of putting it. Well, I mean the idea that as a section of the American workforce that's not having such a great time, is that a particularly new thing, or is it that posts the global financial crisis, all of a sudden, it's getting a level of attention it didn't get before. Well, it could be both of those things, or it could really be that the situation is changing. But these kinds of issues are at the

heart of the new book by our guests. It's called The Financial Diaries, How American Families Cope in a World of Uncertainty. Jonathan more Duck is a professor of public policy and economics at New York University, and Rachel Schneider is senior vice president at the Center for Financial Services Innovation in Chicago, a group that seeks to improve banking for low and middle income Americans and full disclosure get some funding from companies in the industry, including Bank of

America and City Group. Jonathan and Rachel, thanks for joining us today. Thank you. You just start out and tell us a little bit of how this project came about and what you set out to accomplish. The project started, um we started thinking about around in the wake of the Great Recession, and there's a sense that something huge, of course, had happened in the American economy, but it was hard to see how the pieces were all landing, how American families were really doing after the recession, and

we didn't really have data to sort it out. And we figured that the only real way to get to know how families were doing was to go out and spend a lot of time getting to know them and figuring out how families were coping after the crisis, And

so the project eventually involved getting to know families. We spent a full year trying to track every single dollar that the families earned and spend and borrowed and saved, really their entire financial lives, so we could get a lens on what was really happening um to the families after the crisis. Well, what's intriguing about this is you've

based your findings on hard data. I mean you've just described this excruciating process of gathering the information rather than a lot of these sorts of books which tend to be more impressionistic. Would that be a fair comment. Yeah, I think that is their right. So those field researchers who gathered the data or visiting families every few weeks and really trying to gather information about every single dollar

that the families earned, spent, borrow and saved. And so while the heart of our book is really the family stories, the heart of our findings is a lot of data. And it's worth pointing out the data we gathered, UM, and the way we thought about it really changed in some ways over time, or at least for some of us.

I mean, this was a complicated research project where um, of course Jonathan and I and a team of researchers were working together, but also, as you mentioned, UM, there were other funding partners in this case, the City Foundation and the Ford Foundation, and then ultimately do a MIDI

our network. And I pointed out only because you know, in describing CSI, you rightly pointed out that TVs I has a focus where I work on um on financial services, and we do often get funding for financial services, and in this case we started out at cbs I anyway, and probably the City Foundation did two in their funding of this work, thinking that it would really help us

to better understand what financial services people needed. The reality is that and I think Jonathan saw this from the get go, that what we were doing in fact gave us a broader lens, that it was less about financial services and more about the economic ups and downs economic lives as people in a broader way, and so we really needed the detailed data we gather it over of course the course of the year to do that piece and to understand what people were experiencing in a holistic

sense in their financial lives. Tell us a little bit more about these regular financial or economic ups and downs that people are experiencing. You you write a lot in the book about how people's income would would vary a lot from month to month. Uh, you know, one month it would be above average, and then next month it

could be below that by the same amount. And I found really fascinating one of the stories you tell in the book about the family where the father actually quits his job fixing trucks on commission for one that's lower paying but steady. Uh, you're providing a steady paycheck. How common is that? What kinds of forces are at work here? And you know, to go back to our broader question, is this a new phenomenon or is this just something

that we're discovering more that's always been there. Yeah, our sense is said, what's been in play is a process that started around the nies with a shift in jobs. And so Jeremy, who was a truck driver in a truck mechanic in Ohio, UM, you know, used to be in a situation in the context where there were a lot of factory jobs. When he was growing up, maybe a quarter of us jobs were in manufacturing. UM. But of course union jobs and manufacturing jobs has been sliced

over time. You know, today about ten percent of jobs are manufacturing. So Jeremy has fewer choices and he ends up as a truck mechanic and he's working on commission. And when we first met him, his weekly paychecks were very variable because it wasn't clear how many trucks there would be to fix, and he was bearing all of that risk. And that you're saying at the end of the year he just quit his job for a lower paying job that was more steady, And we are seeing

that pretty broadly in our sample. On average, were seeing the households spent about five months of the year where their income was above their average or below their average. So economic and security in many ways, it wasn't about I'm going to lose my job. It was about how am I going to navigate the ups and downs that are going on in my given job? And how did you identify the particular families that you would study. Were you after a certain income group, a certain demographic group,

a certain geographical group. Yeah, our goal was to understand a broad cross section of the American experience. So we knew that with the level of the depth of the data we wanted to collect, we couldn't do a nasting representative statistically significant sample, right um, But we could scatter our field researchers across the country, and so we gathered information from people in California along the Ohio Kentucky border, in Mississippi, and in New York. And our goal was

to understand what it was like for working Americans. So about a quarter of the sample is around the area meeting income around around middle class in their region, about a quarter is close to the poverty line, and then the remaining half is in between those two. But the common threat is that when we recruited households to join the study, every household had somebody in the family who was working. And what gave you the idea to pursue

this study? Well, I feel like I should ask that one sinceince it gives me a chance to um to

Jonathan's horn for prior work. You know, this is really um a follow up study to work that was done internationally that was also called financial Diaries and as a resource methodology that was innovated in the developing world in India and South Africa and Bangladesh, and Jonathan and the researchers who had done that work wrote a book called Portfolios of the Poor and and what was fascinating and I first learned about that work maybe um not quite ten years ago, on a study trip to South Africa.

And what was fascinating to me about it when I learned about it was that in the US we had so much data, right we collect reams and reads of financial that you rattled off some of the statistics we capture on a regular basic unemployment rate jobless um. Right.

We we capture all kinds of quantitative data about spending and about earning and about savings, and yet this international work gave a deeper intuition, a more visceral understanding of what was happening in people's financial lives than we had in the US, even though we have so much more information, really, and so that was a big part of the genesis

of and inspiration for this project. Our funders, we're really interested in replicating that exercise in deepening intuition, opening understanding

through work that was both quantitative and qualitative. Now, when you talk about the ins and outs of people's daily monthly finances and the interplay with the broader economy, UH, you know, it brings me to think about some of the articles we've been recently recently writing I edit our u S economy coverage, and a major story for recent months, at least from an economic standpoint, has been a slowdown

in consumer spending in the first quarter. And there have been various reasons given for that, but some analysts are attributing part of that slow down to UH delays in people getting their tax refunds. And it's interesting for me to read in your book exactly how important tax refunds are for so many families in terms of their annual spending. Why do people intentionally make that decision and to have that big lump of money each year instead of kind

of smoothing it out so they have more stability. It's a really interesting question, and the answered the the households we met really tried to do both right. They know that their lives can be pretty rocky and that they ought to save up and borrow to smooth things out. But there are also lots of times when they need a big chunk of money or they want a big chunk of money to do some big things, and so

they're these sort of competing goals. One is something that requires a spike of money and another is something that

requires smoothing. And so, you know, for example, Jeremy the truck driver we were just talking about the truck mechanic UM, he over withheld his UM you know, monthly tax withholdings, so that by the time tax time came around, he got a seven thousand dollar refund, which was big, and it allowed them to pay off some debt, pay for some Christmas bills, UM and do a bunch of things for the home and for their children that wouldn't have been possible, um if they just used you know, whatever

they had each month. So sometimes you need a big chunk to do some big things. This increase in income volatility that you're describing, how much of that is technology? Why do you ask? You know? Um, it's something to think this is really a result of the gig economy or that it you know, we can blame just technology or just globalization. I think it's a combination of factors. It's really a broad shift in how work functions. So

some of it is definitely technology. Um, for a lot of people who work hourly, and more than half of American workers work hourly, technology makes it far easier to si as your workforce to demand for your products and services. So a retailer or a restaurant knows what demand is going to be on a Wednesday at two and can have exactly the right number of workers on site. But some of that would happen even with that Without technology, restaurants have always noticed low demand and sent waiters home.

So it's not only technology, it's really a broader phenomenon. I think. Let me talk about some of the policy prescriptions here. I was struck a little bit how you're you're talking about at the beginning, Rachel, about the funding behind the project, and you know how in general your your group looks for ways to uh improve financial services for you know, kinds of lower income, middle income people.

And yet you know, the people in your book struck me as being reasonably savvy about the financial services and banking services that are offered, and kind of on top of things, how how can financial services be improved for the kinds of people that were the research subjects in your book or do you think they're kind of at their you know, at a sort of optimal stage and it's really you know, the broader government policy uh prescriptions that would need to be modified somewhat to help deal

with some of these situations. Yeah, I have a guess and respond to that. You know, I'm really glad that the people we wrote about seem to you like they were financially savvy. That to me says we accurately represented them because they were right. People are, especially when they have less money, really smart and thoughtful often about how to make that money stretch. But I think often the strategies they were using to make that money stretch show

us gaps in how financial services are are not serving them. So, for example, we tell a story in the book about a woman we call Janice who had the savings account and a checking account, but she cut up her check book from her checking account, right, she cut up her

ATM card from her savings account. She intentionally has those two accounts in different institutions, and the savings account is an hour's drive away from her home and has hours that she thinks, you know, are not so convenient relative to when she works. And she does all that on purpose. And now it would be easy to say, hey, that's

a mistake. She's not using those products right. She's paying seas at check cashers and fees to get money orders to pay her bills instead of using her checking feature. So she's doing it wrong. But I think you have to look at it the other way and say, okay, well, what's broken about that product design for her? What's broken about that product design is she actually wants some wall between herself and her spending and her savings, So she actually wants it to be hard to withdraw. She actually

wants it to be hard to um. She's cut up her checkbook in particular because she didn't want to have any temptation to use payday loans, but she'd had trouble within the past, and to get it paid a long you've got to turn over assigned to check, post stated signed check. So she's you know, you could say she's

using their products wrong. Where you could say, all right, how do you adjust UM transactional services that are available to enable her to still pay her bills conveniently electronically but not have any risk of using payday or shaves, but not have be able to access her funds when she needs them. So how do you do how do you do that? Well? UM? One thing you could think about is UM savings products that have a commitment feature

or it's harder to withdraw the money. In a funny way, UM savings products make it really easy to get your money worse of optimizing our financial products for spend, not for safe and so I've been encouraged to see if this. I in general have been encouraged by financial technology products that are more greered towards helping people to save flexibly, helping people to identify the goal they're saving for UM and walling that savings off in a creative way, so

it makes it easier for people to their objectives. Yeah, there's kind of a fundamental opposition which is really interesting and difficult, and families are dealing with in different ways, and that is distension between needing structure structured financial products. Um. You know, like a savings account where all the money gets put into an account which you can't access for a long time. It's like a retirement account or a

Christmas club or something like that. But at the same time, in a world of volatility and instability, you need some flexibility, and so getting the balance between flexibility and structure is really hard with the available products. And that's why Janice, you know, open this account an hour away. Um, that was her way of getting that balance, But it's hard

to get that in the commercial marketplace. Now. The working class, particularly the white working class in certain geographic areas of the country, has had a lot of attention paid to it since last November. Is there or what kind of intersection did you find between the politics of the moment in the respective groups that you've studied and wage volatility. I guess what I'm asking is, does the phenomenon that

you've detailed describe the Trump effect. One of the things that we see is that today workers without college degrees are struggling in lots of ways, and we see that in the labor market in terms of wages. What our data and related data are showing is that it's not just average wages. They also are facing much more instability

than other workers. And so there's a group of workers out there, white, black, Hispanic black and Hispanic workers actually have a harder time, but white workers as well, um, who are living fairly precarious lives even though they have jobs. So there's economic anxiety even for people with jobs. And that's the great puzzle in America that people have been

trying to sort out. I think the answer is that once you spend time and followed people a month by month, you can see exactly why there's so much anxiety in the sense that the system really isn't working for them. So I'm trying to figure out if that's a year's well, I'll take a crack at it too. I think, um, you know, there's lots of explanations for Trump. I don't think we're the best positions to explain everything that happened there.

I do think what what our data suggests is that when you look at or not just suggest what our data shows you with when you look us at unemployment rates, just the GDP growth, just at big picture numbers for what's happening economically in our country, you miss a huge amount of economic insecurity that people feel. Now, is that the economic insecurity that drove people to vote for Trump? I don't know. I do know it is the kind of economic insecurity it's easy for us to miss and

therefore easy to fail to address. But if the big picture is improving economically, does that reduce this kind of income volatility on the micro level that you're seeing or do we need to do more research to really determine if that's the case. I'm certain that this kind of economic insecurity deserves its own responses. So it's not going to be enough just to expect wages to rise or productivity to grow fast enough and then magically people won't

have this kind of insecurity. I think that the volatility is a distinct issue on its own. Um. You know, you could argue that if incomes right to a certain level, then you don't need to worry about faltility. People will just manage it on their own, but at the pretty high income level before that's going to be the case. Yeah, I think you know, what we've seen has been a real shift in bargaining power toward management away from labor.

And if that fundamental bargaining balance doesn't change, then I don't see any reason why. Yeah, this pattern would change, all right. Well, many issues that we continue to explore in our economic coverage on our Benchmark podcast. Jonathan Morduck f n y U and Rachel Schneider from the Center for Financial Services Innovation, thank you so much for coming on the program with us to discuss your book. Thank you, thank you, and we hope you'll keep coming back to

describe the data that you collect. I gather this is an ongoing project, or at least you're doing more work based on the result some face. Oh, I have to say, actually, um, yes, both of us are continue to think about these issues. But the data gathering from the diaries, um is concluded for the moment. But I think there's still more learning from even the data we collected, and so yes, you will see more ideas from each of us over time. Well, look forward to the financial Diaries to the Revenge of

Income Volatility. Yeah, really, thank you so much. We really appreciate the conversation. Benchmark will be back next week and until then, you can find us on the Bloomberg terminal, Bloomberg dot com, or Bloomberg App, as well as on Apple Podcasts, Podetcast, Stitcher, or wherever you prefer to listen to podcasts. While you're there, taking a minute to rate and review the show so more listeners can find us and let us know what you thought at the show.

You can follow me on Twitter at Scott Landman Dan you are at Moss Underscore Echo, and our guests are at at j M O R g U c H and at Rachel Schneider. Ben Mark is produced by Sarah Patterson and the head of Bloomberg Podcast is Alec McCabe. Thanks for listening, See you next time.