Project and content management for Contemporary Authors volumes
WORK TITLE: The Financial Diaries
WORK NOTES: with Jonathan Morduch
PSEUDONYM(S):
BIRTHDATE:
WEBSITE:
CITY: New York
STATE: NY
COUNTRY:
NATIONALITY:
http://cfsinnovation.org/team/rachel-schneider/ * https://www.linkedin.com/in/rachel-schneider-62333b12/ * http://emerge.cfsinnovation.com/speakers/rachel-schneider/ * http://press.princeton.edu/releases/m10920.html * http://www.usfinancialdiaries.org/about/
RESEARCHER NOTES:
PERSONAL
Married; two children.
EDUCATION:University of California, Berkeley, B.A.; University of Chicago, M.B.A., J.D.
ADDRESS
CAREER
Center for Financial Services Innovation, New York, NY, senior vice president. Former investment banker at Merrill Lynch and VISTA Volunteer. Consultant and public speaker.
AVOCATIONS:Competing in triathlons, playing piano.
WRITINGS
SIDELIGHTS
Rachel Schneider is coauthor, with Jonathan Morduch, of The Financial Diaries: How American Families Cope in a World of Uncertainty, an examination of the economic instability faced by many Americans. They and their team of researchers tracked the income and spending of 235 working-class households in five U.S. states–Ohio, Kentucky, California, Mississippi, and New York–during 2012 and 2013. They recorded even the smallest financial transactions, resulting in a total of 300,000 transactions in “financial diaries.” They report that these households also face the problem of inconsistent income. The migration of manufacturing jobs overseas and the decline of organized labor mean that the factory jobs that once provided steady income are scarce, so some people must rely on temporary or freelance work–what the authors call “the gig economy”–to meet their expenses. Also, employers, enabled by technology to project workforce needs more accurately than ever, may change employees’ hours frequently and with little notice. These households try to budget and save, but still are often short of funds. Even households with middle-class incomes, the authors note, often have difficulty covering large, unexpected expenses, such as repairs to cars or homes. Like their counterparts abroad, Americans with financial problems may borrow from friends or family members. Additionally, they sometimes postpone bill payment or resort to high-interest payday loans. Schneider and Morduch propose some public policy solutions, including limitations on employers’ power to change workers’ hours and stricter regulations on the marketing of payday loans.
Some reviewers found much worthwhile in The Financial Diaries. It “succeeds in shining a light on the extent and experience of volatile household finances in the US,” remarked Joe Lane in the online LSE Review of Books. “Whether it helps to build the case for policies to target insecurity will depend on its reception.” In the Stanford Social Innovation Review, Ron Haskins praised the authors’ research but expressed reservations about their suggestions for improving the situation. “Morduch and Schneider bring home the seriousness of these swings in income and the problems that result through detailed stories of the real families that participated in the study,” Haskins commented, although he added: “The sample, collected through local networks in specific communities, isn’t necessarily representative of the overall US population.” He saw a lack of evidence that their proposed solutions would have the desired effect, and concluded: “Further studies that test such policy proposals may be the best hope for helping struggling families like the ones profiled in this book.” A Publishers Weekly critic gave the book an unqualified recommendation, however, terming it a “sharp-eyed, sympathetic study” and “a must-read for anyone interested in causes of–and potential solutions to–American poverty.”
BIOCRIT
PERIODICALS
Publishers Weekly, February 27, 2017, review of The Financial Diaries: How American Families Cope in a World of Uncertainty. p. 90.
Stanford Social Innovation Review, summer, 2017, Ron Haskins, “The Closer You Look, the Worse It Seems.”
ONLINE
Center for Financial Services Innovation Web site, http://cfsinnovation.org/ (November 16, 2017), brief biography.
LSE Review of Books, http://blogs.lse.ac.uk/ (May 19, 201|), Joe Lane, review of The Financial Diaries.*
Rachel Schneider
Senior Vice President
Rachel Schneider is a Senior Vice President at CFSI, and co-author ofThe Financial Diaries: How American Families Cope in a World of Uncertainty. The Financial Diaries connects the findings of the ground-breaking U.S. Financial Diaries research project, which collected highly detailed data about how 235 households save, spend, borrow and plan over the course of a year, with the broad trends upending the economic lives of American families. It uncovers the emergence of a hidden inequality, in addition to disparities in income and wealth – an inequality in access to steady finances. It provides a framework for how to develop the products and policies that can help.
Rachel is a highly sought-after consultant and speaker, always offering her frank, insightful assessments of the financial challenges facing the majority of Americans. Her research has been featured in the nation’s top publications, including the New York Times, Wall Street Journal and many others, and she speaks frequently at a broad spectrum of events.
Though she began her career as an investment banker at Merrill Lynch & Co., Rachel credits her commitment to the potential for innovative finance to solve major social problems from her days as a VISTA Volunteer (now AmeriCorps). She holds a J.D./M.B.A. from the University of Chicago, and a B.A. from UC Berkeley. She lives in New York City with her husband, and their two children. She occasionally “competes” in triathlons, which are getting easier to “win” as the number of competitors in her age group shrinks. Unfortunately, the same improvements cannot be said of her piano skills.
Rachel Schneider is an SVP at the Center for Financial Services Innovation. CFSI's mission is to improve the financial health of Americans, especially the underserved, by shaping a robust and innovative financial services marketplace with increased access to higher quality products and practices. Though she began her career as an investment banker, Rachel credits her commitment to the potential for innovative finance to solve major social problems from her days as a VISTA Volunteer (now AmeriCorps). She holds a J.D./M.B.A. from the University of Chicago, and a B.A. from UC Berkeley. She lives in New York City with her husband, and their two children.
The Financial Diaries: How American Families Cope in a World of Uncertainty
264.9 (Feb. 27, 2017): p90.
Copyright: COPYRIGHT 2017 PWxyz, LLC
http://www.publishersweekly.com/
* The Financial Diaries: How American Families Cope in a World of Uncertainty
Jonathan Morduch and Rachel Schneider.
Princeton Univ., $27.95 (240p) ISBN 978-0-691-17298-9
This sharp-eyed, sympathetic study from Morduch, a public policy and economics professor, and Schneider, a financial services company vice president, has a compelling new angle on the effects of long-term financial instability on working-class families. The authors' focus is on cash flow and how it can reveal instability that's not otherwise obvious from simple income information. They designed the titular financial diaries by recording a total financial picture for each of 235 households in five states: dollars earned, spent, and received in government entitlements. The study shows how cash-flow uncertainty prevents people from sticking with long- or even short-term financial plans. Using the narratives of a handful of survey respondents--including a casino card dealer and a performing arts teacher--the authors discuss various coping methods: saving, borrowing, and drawing on communities and networks. They also examine how pervasive financial uncertainty drains people's time and energy, citing a 2014 survey in which 92% of respondents said they would prefer economic stability to extra income. This is a must-read for anyone interested in causes of--and potential solutions to--American poverty. Agent: Ted Weinstein, Ted Weinstein Literary Management. (Apr.)
Source Citation (MLA 8th Edition)
"The Financial Diaries: How American Families Cope in a World of Uncertainty." Publishers Weekly, 27 Feb. 2017, p. 90. General OneFile, go.galegroup.com/ps/i.do?p=ITOF&sw=w&u=schlager&v=2.1&id=GALE%7CA485671227&it=r&asid=6c2accd6b872c3dec75f036e47270d2b. Accessed 2 Oct. 2017.
Gale Document Number: GALE|A485671227
Book Review: The Financial Diaries: How American Families Cope in a World of Uncertainty by Jonathan Morduch and Rachel Schneider
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In The Financial Diaries: How American Families Cope in a World of Uncertainty, Jonathan Morduch and Rachel Schneider focus on the volatility of domestic finances in the USA, presenting the findings of a new study based on the diaries of 235 households. In identifying the shared experience of financial uncertainty and the impact on people’s lives, this book provides a strong case that a new policy agenda is needed to tackle economic insecurity, writes Joe Lane.
The Financial Diaries: How American Families Cope in a World of Uncertainty. Jonathan Morduch and Rachel Schneider. Princeton University Press. 2017.
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Political and media attention on the increasingly precarious nature of work has been fuelled by the high profile, often controversial, growth of the ‘gig economy’. Insecurity, however, runs deeper than recent changes to the labour market. For many people, it is the volatility caused by the predictable challenges of everyday life, as well as the lack of a reliable paycheck, that makes it difficult to make ends meet.
In the twentieth century, researchers like Michael Harrington exposed the extent of extreme poverty in the US. In turn, they helped to build the intellectual foundations for policies that aimed to combat that poverty. Though the problem of extreme poverty is by no means consigned to history, an equivalent success for researchers in the twenty-first century might be to do the same for insecurity. Financial Diaries: How American Families Cope in a World of Uncertainty succeeds in shining a light on the extent and experience of volatile household finances in the US. Whether it helps to build the case for policies to target insecurity will depend on its reception.
The primary value of Jonathan Morduch and Rachel Schneider’s work lies in the uniqueness of the research. The book is based on diaries with 235 households, conducted in five states across the US: Ohio, Kentucky, California, Mississippi and New York. Building on research in low income communities, including by Morduch, the diaries recorded every transaction made by households over the course of 2012-13. The resulting 300,000 transactions give an unrivalled insight into the cash flows as well as the hidden rhythms, concerns and aspirations of people’s financial lives.
The structure of the book is clear. There are three main sections: the first describes how insecure US households have become; the second, how they cope; and the third sketches what that means for how we should think about poverty and what might be done about it. Section One contains the two most illuminating chapters.
Image Credit: Broken piggy bank (http://401kcalculator.org CC BY SA 2.0)
In the first chapter, the researchers focus on household earnings. Much of the content is familiar. The decline of manufacturing and trade unions, the shifting nature of work and the rise of contingent, or ‘gig’, labour are all cited as reasons for the growing volatility and insecurity of people’s incomes. The diaries allow the authors to dig below the surface and add colour to that picture. For every new statistic – nearly half of participant households had a gain or loss of income of 25 per cent or more from one year to the next – there is a detail no national survey could tell you. For instance, for one participant, Janice, a card dealer in Mississippi, a cause of income insecurity was the fact that in odd years – when Mississippi State’s football team plays two of its key fixtures away – she missed out on two good paychecks.
If the first chapter is rich but often familiar, in the second chapter – which focuses on spending – the unique contribution of the research is even clearer. Spending is the side of the household balance sheet that is often overlooked by researchers. Focusing, as in Chapter One, on one household, the researchers show how Sarah and Sam, while ostensibly middle-class with an income of $65,000, often struggle to make ends meet. The diaries allow the researchers to see why. Each time the researchers visit the family they have had another major expense: three car breakdowns, two graduations and a burst water pipe, to name a few.
Sarah and Sam’s experiences, like Janice’s in Chapter One, are not anomalies. On average, the research found that spending is almost as volatile as income. Typically, households had five months in the year where their spending was either 25 per cent above, or 25 per cent below, their average monthly spending for the year.
Three important arguments run throughout the book. The first is that insecurity and uncertainty do not just make it difficult for people to make ends meet; it often directly conflicts with aspirations of mobility. The diaries show both sides of the coin. One participant, Jeremy, a car mechanic, moved to a lower paid, but more stable job. In contrast, Sarah, who we meet in Chapter Two, continued to aim high by studying for a college degree instead of a full-time job. The consequence for Sarah and her family was sacrificing stability in the short term.
The authors are also carefully critical of the most common response to the type of challenges faced by the diaries’ households: namely, better budgeting. The assumptions made by too many financial education initiatives about how households live mean they are often irrelevant – focusing on long-term goals and the allocation of spare resources. Moreover, they often make moral judgements about the use of money: people who can’t manage their money use ‘debt’; those who can use ‘credit’.
When you step back from a spreadsheet, many ‘non-essentials’ look more like what one participant refers to as ‘really really needs’. What keeps people from building savings isn’t a ‘lack of awareness or a lack of discipline. Rather, it’s that the day they’re saving for isn’t very far away’ (96). In fact, the researchers found that while those who performed better on financial literacy tests were more likely to have lofty savings goals, they were only slightly more likely to actually have those savings. The reality of people’s lives, rather than their attitude or aspirations, had a more dramatic effect on their financial management.
The third, and most important, theme of the book is highlighting the commonality of uncertainty. The diaries’ households were deliberately diverse: 23 per cent were classified as poor and 26 per cent earned more than twice the poverty line. Yet, nearly a third of participants in the latter group spent at least one month below the poverty line. While the diaries’ participants were not nationally representative, statistics from the Federal Reserve, the University of Michigan’s Panel Study of Income Dynamics and from the JP Morgan Chase Institute’s analysis of Chase accounts are used throughout to corroborate Morduch and Schneider’s findings. Volatility is both widespread and getting worse.
For many, the long arc of the lifecycle theory of saving simply does not reflect the reality of their experiences. The causes of their insecurity are ‘not infrequent disruptions to basic steady income […] the base condition is unsteady’ (34). Deviations from that arc are not noise: instead, ‘the noise is the story’ (11).
On that final point, the book could be more explicit. In the introduction, uncertainty is described as a form of ‘hidden inequality’. There are two weaknesses to that framing. First, it aligns the challenge of volatility and uncertainty with an often intractable political debate. That is likely to trigger instinctive rejection by some policymakers. Second, as a social problem, inequality is more abstract and less relatable. Unlike inequality, financial uncertainty is tangibly experienced across income groups and, as the diaries demonstrate, the impact on people’s lives is stark. It is the commonality of the uncertainty exposed in Financial Diaries that provides the strongest case that a new policy agenda to tackle insecurity is needed.
Joe Lane is a former history teacher and now works as a researcher for a national charity. His research focuses on household finances, personal debt and consumer markets.
Note: This review gives the views of the author, and not the position of the LSE Review of Books blog, or of the London School of Economics.
Financial Diaries Show Stability Matters as Much as Mobility
By Oscar Perry Abello | April 26, 2017
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“The Financial Diaries: How American Families Cope in a World of Uncertainty,” by Jonathan Morduch and Rachel Schneider
There are many versions of the “American Dream.” You or your ancestors may have entered the United States by boat, by plane or by foot. Maybe they arrived in chains, or under cover of darkness. Maybe they overcame segregation, mass incarceration or one of the country’s other systems of oppression. But the turning point in every successful version of the tale almost invariably comes down to the same thing: Someone lands a steady job with a steady paycheck, enabling them to save up for a house, to start a business, or pay for college.
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Yet, when it comes to that steady paycheck, if the lives of 235 low- and middle-income households in Greater Cincinnati, Silicon Valley, eastern Mississippi and New York City are any indication, predictable cash flow is no longer the common thread across every version of the American Dream.
The lives of those households are detailed in a new book, “The Financial Diaries: How American Families Cope in a World of Uncertainty,” by Jonathan Morduch and Rachel Schneider. The book paints a portrait of a new common theme: volatility. Even for those who technically have a dependable job, steady cash flows are no longer the rule.
“There’s plenty of examples of having a steady job but not a steady paycheck,” says Morduch, who is also a professor of public policy and economics at the New York University Wagner Graduate School of Public Service. “It’s a pretty obvious point once you say it, but it still hasn’t made its way into a lot of policy conversations.”
The ideal of the steady paycheck has shaped public policies, institutions and even business models. Everything created to help families get ahead has been designed with that ideal in mind. So even if you’re interested in mobility, perhaps you should also focus on stability, Morduch argues, “because families are focused on stability, and families know that without stability it’s hard to make the right choices about investing in their future.”
With 10 full-time staff in addition to Morduch and Schneider, the research team behind the book visited each household on a weekly basis, building a trusting relationship and attempting to track every dollar earned, spent, saved, borrowed, loaned out or given away. They also kept track of life events and other context to help explain the undulating cash flows that characterized almost every household they studied. Morduch and Schneider worked through local organizations to recruit research team members and households for the study. For the book, real names and other information were changed to protect the identity of the participants.
Some 400 households initially agreed to take part, but only 235 stuck with it a full 12 months from 2012 to 2013. Many dropped out because of a move that took them too far away for weekly visits from researchers.
The team eventually recorded over 300,000 cash flow data points, from transactions as small as buying a pack of gum in a bodega to down payments on cars or major healthcare bills. With the wealth of data, they were able to measure volatility in a number of ways.
One of the most intuitive ways: measuring how many months of the year a household earned at least 25 percent more or 25 percent less than their average income for the year. Across the 235 households, the average was 2.2 months earning at least 25 percent above average and 2.4 months earning at least 25 percent below average.
In other words, for about five months a year, households earned incomes that weren’t even close to their yearly average. Only 2 percent of households got through the year with no income spikes or dips that large. Even among the higher earners in the study, earning around the median household income for their location, participants experienced income spikes or dips for about a third of the year. For one middle-class Cincinnati couple, income volatility was such that the husband eventually found a slightly lower-paying job with a longer commute, just to have a steadier income over the course of a year.
The drivers of income and spending volatility aren’t quite new, Morduch admits. The deindustrialization of cities, and a shift to more service-oriented jobs, especially work that involves tipping. New technology, and not just automation or the gig economy; there’s also new payroll technology that allows firms to better predict how many staff they might need at any given moment, resulting in wildly fluctuating hours and last-minute shifts or shift cancellation. The housing market, with families in changing rental markets due to gentrification or entrenched patterns of eviction. These are all trends that are well known.
“Everything we write about you can find some writing about it somewhere, but the combination of it all is not well understood, and it has implications for saving and borrowing and for understanding why Americans still feel so much anxiety,” Morduch says. What the diaries allowed us to see was how all these problems came together, because you see, sitting in someone’s living room, all these silos breaking down.”
To cope with the new reality of volatility, households do what they have done throughout history, in countries all over the world, including households that Morduch studied in his previous book, “Portfolios of the Poor.” They get creative.
Some use lending circles, also known as tandas or sou-sous. One Ecuadorian immigrant couple in Queens participated in a recurring lending circle requiring them to put $300 a week into a pot that rotates to each household in the circle until every household has had a turn to take it home. With 30 to 50 households in the circle, the weekly pot could be anywhere from $9,000 to $15,000. They’ve participated multiple times, they told “Financial Diaries” researchers, including one time a few years ago when they used it to buy music equipment for the husband’s DJ business and online radio show. The equipment allowed them to expand.
Policies and institutions largely haven’t caught up to the volatility of today.
A man identified in the book as Robert Hill, in Brooklyn, worked in tech support at a nonprofit, earning roughly $22,000 a year — not much at all, especially for NYC. Working at a nonprofit, especially in a big city, Hill has access to numerous resources for long-term saving, including retirement savings accounts. There’s also Individual Development Accounts (IDAs), a federal program where savers can have their dollars matched, sometimes two matching dollars for every dollar they deposit. But IDAs are required to go toward a specific long-term purpose: buying a home, paying for college, or investing in a business. Nonprofits run these accounts for clients, in order to ensure they get used for the purpose that policy intends them to be used.
When Hill needed to save up to move into a new apartment, there was no such program designed to accelerate his savings and thus his ability to get ahead, so he simply let “The Bank of Mom” hold onto his savings, even at age 48. It’s just helpful to keep savings slightly beyond an arm’s length away. A year or so after the diary data collection period ended, Hill estimated he had about $5,000 deposited in “The Bank of Mom.”
Everything is designed to support the long term, and nothing for what the “Financial Diaries” calls the “now, soon and later.” The book also includes an example from a demonstration project involving 13 IDA sites, involving 2,350 households. Only one-third of the households eventually used their accounts for the intended purpose. Everyone else withdrew savings earlier for other needs, forfeiting the matched dollars. Pre-match, households saved a total of $672,577 across the 13 sites, showing that poor households can and do save. But the early withdrawals meant they decided to leave $1.4 million in matched dollars on the table.
In another experiment for another program meant to encourage long-term savings, 7,000 households, two-thirds of them with annual incomes below $40,000, deposited more than $14 million into savings accounts over a 15-month period, but only rarely did any one savings account ever accumulate more than $2,000 at any given point in time.
“There really are emergencies, but then there is another kind of saving, which is more just kind of the ups and downs of life,” says Morduch. “It doesn’t take as much saving at any moment, but it does require vigilance.”
Since the diary data collection has concluded, Morduch and Schneider have spent the past few years going back to some households, fact-checking, filling in holes and asking new questions for more context. They’ve also been sharing early findings as part of the U.S. Financial Diaries Project. Morduch is certain that there are still useful insights to be gleaned from future research and new policies or programs based on volatility instead of stability as the core assumption.
“What’s tricky about this kind of work is, it’s not necessarily about one particular mechanism, it’s about people looking for the kind of functionality a mechanism could give you,” he says. “It could be an Informal mechanism that’s convenient and reliable. That took a while to sort out.”
The Closer You Look, the Worse It Seems
New research details how US families struggle with unstable income not just from year to year but even from week to week.
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Review By Ron Haskins Summer 2017
The Financial Diaries: How American Families Cope in a World of Uncertainty
Jonathan Morduch
223 pages, Princeton University Press, 2017
Buy the book »
B
ack in 2008, Yale University’s Jacob Hacker dubbed major swings in annual income “the new insecurity” and attracted attention in both scholarly circles and the media to what people could immediately see was a big problem. People’s spending, especially on major goods and services such as housing, cars, and their children’s college education, requires stable income. But as impressive datasets such as the Panel Study of Income Dynamics (PSID) demonstrate, income is far from stable for many American households.
In tracking the same families over multiple years, the PSID yielded important information about annual income volatility. Jonathan Morduch and Rachel Schneider’s new book, The Financial Diaries: How American Families Cope in a World of Uncertainty, provides a more close-up view, looking at the financial transactions of households on a monthly and even weekly basis to reveal a new type of financial insecurity.
None of the existing big datasets offer this type of detailed household information. So how was it possible for Morduch and Schneider to obtain it? The answer is simple: They went out and collected it themselves. They selected four communities across the United States, in California, Mississippi, New York, and the Ohio-Kentucky border; identified low- to middle-income households through referrals from local organizations; and met new families using references from ones already participating in the study. The only requirement for a household to participate was that it include at least one worker. The researchers then asked each household to take notes on every financial transaction in which it was involved, including earnings transfers, purchases, bill payments, and borrowing. The 235 families that completed the yearlong study recorded an astounding average of about 1,275,000 transactions per household. Given the heavy burden of reporting this data, it’s little wonder that 165 households, or about 40 percent of the original 400, dropped out of the study before it ended.
The most important observation from this research is just how much the average household’s income varied over the year. The authors looked at the number of months (out of 12) when each family’s income came in at more than 25 percent above or below its monthly average. They found that over the year, households experienced an average of 2.2 months when income spiked above the 25 percent level and 2.4 months when it dipped below. That adds up to nearly five months per year when the average household’s income was very different from its monthly standard. Only about 2 percent of households didn’t see at least one month with this level of variance. Poorer households experienced more volatility, but it significantly affected even households with incomes of more than 200 percent of the poverty level.
Morduch and Schneider bring home the seriousness of these swings in income and the problems that result through detailed stories of the real families that participated in the study. Descriptions of the problems facing these people, which make up about half of the book, have a powerful effect on the reader. Financial planning is all but impossible when income isn’t reliable. Families find that borrowing, sometimes at high rates, is often necessary, making financial problems greater still. Even using safety net programs becomes difficult when family eligibility for benefits varies from month to month. And, not surprisingly, huge swings in income also increase worrying, which often leads to tension and conflict between members of the household.
Morduch and Schneider also give impressive examples of how families have tried to cope with the shortfalls in income they so frequently experience. Families may borrow money, often from friends and relatives; manage to build small pools of savings; work extra jobs or hours; and persuade their creditors to extend the due dates of bills. But the authors find that these solutions, creative though they may be, usually provide no more than temporary relief.
The most significant flaw in the study is that the sample, collected through local networks in specific communities, isn’t necessarily representative of the overall US population. Even so, the fact that the authors selected families from four different areas of the country and from a wide range of income levels provides at least some reassurance that the striking income volatility the authors document is reasonably widespread.
The authors conclude by providing a brief set of suggestions for policies that might help families cope. They favor laws that would limit employers’ ability to change employee work hours frequently and at the last minute, and regulations on marketing practices of financial products such as high-interest payday loans that can lead families into ever-increasing cycles of debt. But the evidence that these policy suggestions would be effective is lacking. Although short-term income volatility afflicts many families, it’s not yet clear which policies would do most to address the problem. At this point, further studies that test such policy proposals may be the best hope for helping struggling families like the ones profiled in this book.