When we think about what it means to be poor in America, we tend to focus on comparisons of annual household income. While this is certainly a useful benchmark to look at, it leaves out one of the most important measures of wealth: financial stability.
There are roughly 48 million Americans living in poverty today, according to a recent report from the U.S. Census Bureau. Many of these people are forced to scratch together a living by working multiple part-time jobs. But the problem with part-time work is that the hours are often inconsistent: you might get 39 hours one week and just 15 the next, depending on your employer’s needs.
Because of this inconsistency, many Americans add informal side jobs to their part-time work schedule to help supplement their income. Unfortunately, this type of work is just as unpredictable as part-time employment, if not more so.
The constant fluctuation in income that results from this kind of haphazard employment can put a great deal of financial stress on households, making it very hard for people to pay off debts or save money for the future.
Over time, this stress can become a major burden for American families. In fact, 77% of the participants in a recent study said that they would choose “financial stability” over “moving up the income ladder.”
In other words, families living in poverty are willing to make less money if it means that the money comes in more consistently.
The study was carried out by the U.S. Financial Diaries (USFD), a research project that focuses on low to moderate income families in the United States. In their report, the USFD points to a number of factors that contribute to financial instablity, including,
“…insufficient income, unpredictable expenses, a lack of savings, inadequate financial management, and reliance on complicated or poorly designed financial products and services.”
The USFD found that for the most part, the households examined in their study had very little control over the month-to-month fluctuations in their income. The researchers also note that even families with relatively decent annual income can face tough challenges if that money is spread out inconsistently over the course of the year.
People who are unsure of when their next paycheck is coming tend to put off spending money until the last possible opportunity. The families in the USFD study were regularly forced to budget on a day-to-day basis, buying things in small quantities instead of saving money by buying in bulk once in a while. They also tended to procrastinate on their bills — a practice that often made the families’ financial troubles even worse.
In terms of solutions, the USFD suggests that innovations in the financial services industry and improved government policies could both help alleviate some of the challenges being faced by Americans living in poverty.
However, the report concluded that the key to increasing financial stability is to help struggling households do a better job of saving money from income spikes (like bonuses or tax refunds).
Read the full report from the USFD here.