All Posts Tagged: income disparity
Income volatility – uncertainty about the amount and timing of the next paycheck – is a significant problem in America.
“For many, relatively large month-to-month income swings are the norm,” reported the Tax Policy Center of the Urban Institute and Brookings Institution in May. Using data from 2008 to 2012, the Center found that “[n]early 40% of low-income, working-age adults have household income that spikes or dips in at least six months of the year.” And in 2016, the Federal Reserve found that “32% of adults say that their income varies to some degree from month to month, and 13% struggle to pay bills in some months due to income volatility.”
A leading cause for this trend may be the transition in many industries to “gig”-based employment, as Robert Reich has noted. Even “steady” employees, though, are experiencing shifting schedules and pay.The impact can be costly
Not knowing how much will be in your checking or savings account next month can cause more than just terrible stress. Income disruptions significantly increase the likelihood of financially insecure households missing housing and utility payments (3x greater chance) and of being evicted (14x greater chance). The risk is especially acute in America’s most expensive cities. And if unexpected expenses like medical bills or emergency repairs pop up when cash flow is low, the financial hit can be devastating. Almost half of the adults responding to the Fed’s 2016 survey said “they either could not cover an emergency expense costing $400, or would cover it by selling something or borrowing money.”
There is a solution, however: savings. Savings is the buffer than can mitigate income volatility. “Families with a savings cushion as little as $250 to $749 are less likely to be evicted, miss a housing or utility payment, or receive public benefits after a job loss, health issue, or large income drop,” the Urban Institute found.An incentive to save
Enter SaverLife, a program launched in the nine San Francisco Bay Area counties in June by EARN, the national micro-savings nonprofit (where I’m currently a board member), and the Office of Financial Empowerment (OFE) of the San Francisco Office of the Treasurer. SaverLife will lead more people to adopt a money-saving lifestyle by combining incentivized savings with financial coaching and education.
For each month that a SaverLife participant deposits at least $20 into an account (at any one of more than 9,000 U.S. banks and credit unions), SaverLife will add another $10 – free, no strings attached – over a six-month period. Complementing that, the program offers a continuing stream of financial education materials online and via email to help people determine and attain their savings goals.
“Many people understand how important it is to save, and they plan to start… tomorrow,” said Leigh Phillips, CEO of EARN. “By combining the savings incentive with financial coaching, SaverLife turns ‘tomorrow’ into today and takes the economic anxiety out of things like car repairs, medical bills or the prospect of retirement.”Forming a habit
And EARN’s micro-savings track record since 2001 shows that saving money, once begun, becomes a long-term habit. Nearly 85% percent of the organization’s clients reported that they continued to save after the end of their incentive period.¹
Grassroots outreach is at the heart of SaverLife’s success. Through partnerships with a coalition of employers, community organizations and government agencies, and utilizing a comprehensive set of digital, social media and print communication materials (currently in English and soon to be available in Spanish), the program is spreading the word about savings.
San Francisco, where EARN is headquartered, is a natural incubator for SaverLife. Through the OFE, San Francisco Treasurer José Cisneros has led public-private-nonprofit partnerships to expand financial empowerment for more than a decade. Bank of the West is proud to have played a collaborative role, working with Treasurer Cisneros and our nonprofit partners, to develop and implement innovative, impactful ways to strengthen people’s financial health.
¹As of August 2017: In the San Francisco Bay Area, 1,300 people have signed up for weekly financial education emails and 860 of them – 66% – have begun to save money as a result. In a test group, the average savings after six months was more than $500.