Family Finances

Looking Deep to Discover the Cause of, and Solutions to, Income Volatility

December 1, 2017  • Katie Bryan

“We need to be talking about issues like income volatility now more than ever,” Tishaura O. Jones, the treasurer of the city of St. Louis, says. “Too many people feel trapped by a system that punishes them for being poor and unbanked or under-banked. We as a community can and need to have conversations about issues like income volatility if we want St. Louis to be a great place to live and raise a family.” She’s right: more and more low- and middle-income American households are experiencing high levels of financial uncertainty and income volatility

So what does that mean? Well, for many families, it means coping with significant income swings: four in ten households say their earnings fluctuate 30 percent per month on average. That kind of unpredictability makes planning for the future nearly impossible. At the same time, 60 percent of households experienced a financial shock within the past year— and whether it’s a housing emergency, health care crisis, or job crunch, for families that don’t have nest eggs, it’s a disaster. What’s more, the volatility of month-to-month expenses is even more widespread than income volatility. All of which makes it untenable for millions of American households to make ends meet, plan for the future, or save money.

The sheer scale of this financial challenge prompted EPIC, the Financial Security Program’s Expanding Prosperity Impact Collaborative, to take on income volatility for its first deep investigation. Over the past two years, EPIC has conducted original consumer research, surveyed experts, and gathered dozens of leaders to exchange views and come up with solutions.

“We knew that income volatility and economic shocks contribute to food insecurity,” says Erica Greeley, the vice president of programs at Feeding America, an organization that addresses hunger through a nationwide network of member food banks. “But as Feeding America develops strategies to strengthen pathways out of hunger for working families, EPIC’s work has informed our decision to focus not only on a household’s net income but also on the destabilizing implications of volatility.” Of course, connecting the dots between hunger and the core financial-security issues that lead to it can be overwhelming.

That’s why EPIC developed Finance Forward, a multicity event series that brings together local governments, businesses, community advocates, and nonprofit leaders to come up with innovative solutions to income volatility. So far, Finance Forward has held events in Columbia, South Carolina; East Lansing, Michigan; and St. Louis, Missouri. Jones, the St. Louis city treasurer, was already working to improve the financial resiliency of her city’s residents when she learned about EPIC’s initiatives. She had pioneered a program to encourage young people to start saving early, but she also understood that she needed new insights for her community. So she partnered with EPIC and brought Finance Forward to St. Louis. Now, Jones says, the city is engaging a different group of leaders to talk about financial security and spending more time considering the role government plays in financial empowerment.

Debbie Johnson, the director of communications for the St. Louis Treasurer’s Office, was surprised at some of the information she learned at Finance Forward, like how members of every income level are affected by volatility and not just the poor and working classes. “There’s an opportunity for us to change the conversation in St. Louis around the topics of financial empowerment and income volatility,” Johnson says. “Income volatility affects everyone, whether you personally deal with it or not.” Johnson left the Finance Forward event ready to reshape the messaging that her office uses when discussing income volatility with city residents. Her new message? “Everyone benefits from a strong city.”

Everyone benefits from a strong city.

“I’m very encouraged that so many high-profile people from different industries and walks of life could come together to work on a common goal and find solutions,” says Pier Alsup, the chief officer in charge of community engagement and social responsibility for the Anheuser-Busch Credit Union in St. Louis. Alsup is now creating a financial-wellness program for the employees of her organization that is directly inspired by Jones’s program to help students start saving at a young age. Alsup is hoping to put that model in place for her employees and their families so that they are prepared for the unexpected. “We are taking a holistic approach to employee well-being,” she says. “Following the diagnosis phase, we will develop products, services, and tools that can help meet the community’s needs and make them more resilient.”

EPIC is not only developing a solid network of leaders who are finding, sharing, and implementing solutions; it is forming partnerships that will continue to research and examine income volatility. For example, by collaborating with the JPMorgan Chase Institute, EPIC leaders gained a deeper understanding of the experience of living with income volatility, and those leaders in turn helped the JPMorgan Chase Institute develop new research initiatives. “Working with Aspen taught me how far-reaching the possible sources of and solutions to income volatility really are—and in particular the links between income volatility and the changing nature of work,” says Fiona Greig, the director of consumer research for the JPMorgan Chase Institute. “It also made me realize that we were missing half of the picture: what was going on with expenses? This inspired us to delve deep into expense volatility and tell a more integrated story about the relationship between income and expenses in our report Coping with Costs: Big Data on Expense Volatility and Medical Payments.”

These are just a few examples of how raising awareness of a critical financial-security challenge can lead to real commitments to problem-solving and real action on the ground. These leaders are paving the way to less volatile and more resilient family finances; they are also ensuring that families have greater stability and security in other areas of their lives. Economic volatility is about more than just teaching someone how to budget or how to establish more predictable work hours. Living with persistent income swings impedes progress toward a community’s ultimate goal of shared prosperity—where all households have long-term financial security.

Learn more at aspeninstitute.org/programs/epic.

Katie Bryan is the communications manager of the Financial Security Program.