Sarah Morgenstern
Principal, Investments

Why We Invested: US Financial Diaries

April 19, 2017

Too often, the financial lives of American households are reduced to a recitation of facts and figures, such as: 

  • 47 percent of Americans couldn’t come up with $400 dollars in an emergency [1]
  • US student loan debt market reaches $1.3 trillion [2]
  • More than 30 percent of non-retired US adults have no retirement savings [3]

While powerful snapshots of US household financial fragility, these statistics alone miss the deeper story: buried beneath the headlines sit the personal aspirations and daily challenges of millions of American families.

At Omidyar Network, we wondered: What would we discover if we spent time listening to US families about what’s actually going on in their financial lives, in their own words?

That question led us to support—in partnership with Citi and Ford foundations—the Financial Diaries: an in-depth study of 235 US low-and moderate-income households. A joint initiative of NYU Wagner’s Financial Access Initiative and the Center for Financial Services Innovation, the study collected detailed data on how families manage their finances on a day-to-day basis for a full year.

The insights unearthed by the study’s authors—Rachel Schneider and Jonathan Morduch—belie deeply held notions about the path to upward mobility and middle-class security in the US, and reveal just how profoundly Americans’ financial lives have changed over the past half century.

Take, for example, the seemingly straightforward issue of household annual income.  Annual earnings are the anchor for virtually every facet of our financial lives, from weekly budgeting to eligibility for means-tested government programs. For an increasing proportion of Americans, however, take-home pay is an ever-moving target: low- to moderate-income households are coping with staggering levels of month-to-month income volatility, with the average household in the US Financial Diaries study experiencing more than five months of the year when income was 25 percent above or below the average. 

This rise in volatility has been driven by fundamental changes in labor market practices, and the knock-on effects can be far reaching: Day-to-day financial stress intensifies. Unexpected shocks become harder to manage—especially as healthcare and other financial risks have shifted increasingly to individual consumers. High-cost, suboptimal financial tools may be used to plug the gaps.

While Diaries families devised numerous smart and creative ways to navigate these rough patches, short-term setbacks nonetheless often made long-term goals feel frustratingly out of reach. Moreover, many Diaries participants experienced these chronic financial pressures as a threat to traditional notions of the American dream. 

As Murdoch memorably summarizes: “The middle class is more than a technical income band—it’s a powerful American idea that is bound up with a sense of security and stability. But when we got to know the families in the study, we saw that with the erosion of slack, and increased volatility, even many middle-class families still had lots of worries… the families we talked to revealed deep anxieties that are part of a broader backdrop for understanding America today.” 

While there are no easy answers to the challenges surfaced in the Financial Diaries, the potential implications are wide-ranging. Formidable macro forces are reshaping the US economy, and consumers’ financial lives are changing accordingly.

We all have a part to play in addressing US families’ desire for greater security and control. Corporations can reassess and refine their employment practices. Government policies can be updated to strengthen the social safety net—including families’ shorter-term liquidity needs—and respond more flexibly to families’ fluctuating income levels. And financial services innovators can develop new ways to assist households with managing their cash flows and building financial health. We are certain that armed with this richer set of insights about households’ underlying financial realities, many will rise to the occasion to support families’ evolving needs. The scope for innovation is vast, and the need to act is pressing.

[1] Federal Reserve, 2016.
[2] New York Federal Reserve, 2017.
[3] Federal Reserve, 2016.


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