Financial shocks—such as a need to pay for a medical expense or income volatility—are common across the income and wealth spectrums. In a given year, 75 percent of households experience at least one significant unexpected expense and 38 percent experience a significant decrease in income. These shocks are costly for those that experience them: Families spend approximately 15 percent and 17 percent of their income on them, respectively.
Yet, despite their prevalence and cost, we are no closer to solving this stubborn financial challenge. Instead, families continue to struggle to either find what they need or navigate the patchwork of potential options to address shocks and make themselves financially whole. To make progress for household financial security, we need to update our understanding of the financial shocks people experience today and the current available solutions, one that centers people’s experiences navigating them. A person-centered understanding will allow financial service providers, employers, nonprofits, philanthropic organizations, and other leaders to better assess whether the programs, policies, and products in the public and private marketplace are meeting the scale of the problem and what is needed to develop practical solutions.
Financial shocks can create urgent financial challenges
Financial shocks may result from:
Benefits Loss or Reduction
- Loss of public benefits due to program cuts (e.g. Medicaid, SNAP, WIC, LIHEAP)
- Asset limits and benefits cliffs policies
- Public benefits theft
- Loss or reduction of private benefits
Impacts to Income or Expenses
- Reduced working hours
- Tax bills
- Higher-than-normal costs for housing, food, or utility bills or other expense volatility
- Medical costs
- Car repairs
Property Damage or Savings Loss
- Loss of savings due to fraud and scams
- Impacts of severe weather such as loss or damage to one’s residence, car, or personal property
Life Events
- Becoming disabled or long-term medical costs
- Transitioning to adulthood
- Having a child
- Transitioning out of military service
- Retiring
- Caretaking
- Divorce or separation
- Losing a loved one
They may occur simultaneously or in quick succession, making them hard to predict and plan for. They often compound, where experiencing one shock makes it more likely that a family will experience additional shocks, struggle with subsequent bills, and face material hardship. Some shocks, like having a child, getting divorced, or becoming disabled, may also trigger sustained higher costs. These shocks can destabilize finances and create cycles of debt, no matter how much people try to plan ahead and protect against them.
Solutions must match the scale and breadth of financial shocks
Families are not in a strong position to contend with the impacts of shocks on their own, and their options via products and services may be limited by other financial constraints, such as their ability to access credit or its cost. For instance, in 2024, if they lost their main source of income, 42 percent of households could cover expenses for a month or less using all sources available to them. And in 2025, total household debt is at record highs and continues to rise, limiting options via lending.
In addition to asking family and friends for financial support or selling assets, people may turn to public and private tools, such as emergency savings products, loans, grants, credit, retirement savings, insurance, or programs such as Unemployment Insurance, Social Security Survivors Benefits, or paid leave policies. But is the array of options available offering families the necessary ease and speed or sufficiently matching the severity of hardship caused by financial shocks?
Below are some examples of financial shocks and, where possible, potential fixes families may try to use:
- A worker who experiences a sudden decrease in hours and corresponding wages may take out a small dollar loan if their financial institution offers them, while a different worker may take on debt via credit cards or an auto title loan, or cover expenses like groceries with a series of Buy Now Pay Later (BNPL) products.
- When a family faces increasing cooling bills due to higher-than-usual temperatures, they may have a workplace emergency savings account that they could draw down or a payment plan option through their utility provider.
- When a relative passes away without a recorded will, the surviving family members may struggle with the immediate funeral expenses, even if that relative had savings. They may need support from family and friends or crowdsourcing platforms to cover the costs.
- A renter that evacuates ahead of a hurricane may eventually qualify for a local community loan or grant, while a neighboring homeowner may have insurance coverage for their temporary relocation.
- An adult nearing retirement that loses a large portion of their retirement savings to an investment scam may not know who they can turn to for help. Without a clear pathway for recovery, they could be left to navigate their retirement without the funds they had saved over decades.
We need an updated understanding of today’s financial shocks and the potential—and limitations—of available solutions
Financial service providers, employers, benefits administrators and policymakers, insurers, philanthropy, and community-based organizations each have a role in facilitating the access and provision of the full range of solutions needed to help families navigate the consequences of financial shocks and improve financial outcomes. To do so, these leaders must understand the current ecosystem of financial shocks and their prevalence and impacts.
We must answer the following questions to deliver the set of solutions that meet the moment:
- What products, policies, and programs already support families to prepare for and respond to financial shocks? What are the differences in financial well-being based on the options people utilize?
- What are the issues of access, scale, business models, or other barriers of current solutions at play? How can we reimagine the set of solutions or how they reach people?
- Where are the mismatches between need and product availability and design? Are there new or improved products necessary to address today’s financial shocks?
We need public, private, and nonprofit sector leaders to collaborate in the development and provision of the tailored solutions necessary to address financial shocks. Through convenings and engagement to surface the information and marketplace gaps, we will equip leaders with the knowledge they need to support families with this stubborn financial security barrier. Together, we can build a future where families are resilient in the face of financial shocks, not defined by them.
Related
Is $400 Enough? How Households Really Respond to Financial Shocks
Insurance Against Financial Shocks: The Next Frontier of Financial Inclusion
