The ideal of the American Dream seems increasingly out of reach, even for many families who are trying to do everything right. To find out why, Jonathan Morduch and Rachel Schneider followed 235 low- and middle-income families as they navigated a year of ups and downs. Through the groundbreaking US Financial Diaries project, we meet real people, from a casino dealer to a street vendor to a tax preparer, who open up their lives and reveal a world of financial uncertainty. For these families, even limited financial success requires imaginativeand often costlycoping strategies: forming saving clubs, borrowing from relatives, strategizing about skipping bills, and devising ways to keep money just out of easy reach. In The Financial Diaries, Morduch and Schneider challenge popular assumptions about how Americans earn, spend, borrow, and save. This book uncovers deeper causes of distress and inequality, starkly illustrating how changes in America have placed too much risk on the wrong shoulders. The authors describe new tools and policiesfrom fin tech apps that help people manage money to laws that guarantee predictable hoursthat will improve stability for those who need it most.
|Publisher:||Princeton University Press|
|Product dimensions:||5.20(w) x 7.90(h) x 0.80(d)|
About the Author
Jonathan Morduch is professor of public policy and economics at the New York University Wagner Graduate School of Public Service. He is the coauthor of Portfolios of the Poor (Princeton), among other books. Rachel Schneider is the Omidyar Network Entrepreneur-in-Residence at the Aspen Institute and a senior advisor at the Center for Financial Services Innovation.
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The Financial Diaries
How American Families Cope in a World of Uncertainty
By Jonathan Morduch, Rachel Schneider
PRINCETON UNIVERSITY PRESSCopyright © 2017 Jonathan Morduch and the Center for Financial Services Innovation
All rights reserved.
Seven nights a week, the buses rumble more than three hours from Alabama into Mississippi to deposit gamblers in the sprawling parking lot of the Pearl River Resort. By about 9:30, the gamblers, mostly from Birmingham and Tuscaloosa, slowly file out of the buses and head inside, some to the blackjack and poker tables, others to the blinking and beeping slot machines.
Double Diamond Haywire!
Triple-Double Red White & Blue.
The Best Things in Life.
The slot machines hunch shoulder to shoulder in rows across the casino's carpeted floor, and the gamblers, many beyond retirement age, scatter among them. Most of the players sit by themselves, some in wheelchairs or with walkers beside them. Some puff on cigarettes. Some nurse drinks. All steadily, quietly feed the noisy machines.
Pearl River bills itself as "Vegas with Sweet Tea," a family-friendly destination on the Choctaw reservation in central Mississippi with water slides, a spa, two golf courses, a high-end steakhouse, and more than a thousand rooms. But the clear centerpiece at Pearl River is gambling. Running twenty-four-hour slots and table games has turned the Mississippi Band of Choctaw Indians into one of the state's biggest employers.
Janice Evans works the night shift, beginning at 8:00 in the evening and clocking out at 4:00 AM. She has been dealing cards at Pearl River for close to twenty years, since starting in her mid-thirties. A single, African American mother with a high school degree, Janice was searching for a steady job. There weren't a lot of options.
One day she noticed an ad for classes on how to become a card dealer at the casino and signed up. "Anyone could do it," she told us matter-of-factly. Janice's quiet manner and kind smile are nothing like the depictions of card dealers in James Bond movies, outfitted in bow ties and reeling off practiced patter. But Janice's customers, too, are more sweet tea than Vegas, and they settle in at her card table for long, low-key evenings.
On this night in Mississippi, Janice stands at her table in her Pearl River casino dealer uniform: black slacks, black shoes, and a black shirt open at the neck, adorned with a simple gold stripe. Her hair is parted on the side, straightened and falling to her shoulders in bleached wisps. Her red nail polish, with two nails painted deep purple and appliquéd with small stars and hearts, is starting to chip.
Janice quietly roots for the people at her table, encouraging winning hands with a smile. A hint of a grimace crosses her face when a hand is a tough loser, more so when a regular is having a bad run. The gamblers know she likes to see them win, and they appreciate it, even though they know they're expected to tip her more if they do.
Janice is guaranteed $8.35 an hour, but in a good week she can double that in tips. Customers share their winnings with Janice by adding chips to her "toke" box — shorthand for tokens of gratitude. At the end of each shift, the tokes are collected and counted, and the equivalent in dollars is added to Janice's next paycheck. When gamblers are on a lucky streak, the tokes pile up. The more gamblers, the more lucky streaks, and the more tips. Janice does well when the tables are full, especially during the hot summer months when the air-conditioned comfort draws crowds. Fall, especially, can be slow.
Janice gets a paycheck every two weeks. The money isn't great, but she is proud of working her way up, and the benefits, especially health insurance, are good. Over the course of the year, Janice takes home just over $26,000 from her job at the casino.
The yearly total means that Janice averages about $2,200 each month, or just over $1,000 each biweekly paycheck. But as Figure 1.1 shows, the size of those paychecks varied widely. Over the course of the year, her highest was $1,200; her lowest, $900. As a percent of the average of $1,000, that's a nearly 30 percent swing between those two paychecks.
Just before the study began, Janice's son, Marcus, was laid off from his maintenance job after his employer lost a contract. He and his three-year-old daughter moved in with Janice. Without income, Marcus now qualified for food stamps, an average of about $125 a month. But there were big swings here, too. At one point the local social services agency mistook Janice's income for Marcus's and canceled his food stamps. It took two months to get them back. And while Marcus also qualified for unemployment benefits, several months passed before his checks began to arrive. In a way, that was a blessing because they started in the fall, a season when Janice's paychecks were low. But while the benefits helped boost the household's net income to about $33,000, they added to the monthly volatility: the household's income swung 70 percent from high to low months.
Given the nature of Janice's work in a seasonal, low-skill, tipped job and the unreliability of Marcus's benefits, it's reasonable to assume that her family's income would be among the more volatile of the 235 households in the U.S. Financial Diaries. It's not. The degree of volatility Janice and her family experienced was on par with that of most families we got to know. It is hard enough to provide for a family of three on just $33,000; doing so with an unsteady income is even harder.
Work, family, and church are the constants in Janice's life. And worry. There are always worries. At fifty-five, she worries about her health. Her doctor has told her to lose weight. She wishes she could do more for her church and for her friends. Her home always needs something.
Janice's parents still live in the area. Her father leads a small Pentecostal church in town, and her mother makes sure Janice attends every Sunday. Janice notes proudly that she is part of the "first family," and church members always provide a good meal after worship services. The membership numbers about fifty, including children, and everybody knows everybody. If you miss church, Janice said with a laugh, "you're gonna hear it."
Going to church helps assuage Janice's nagging ambivalence about working in a casino. She doesn't gamble herself, but she still worries that her role as a dealer enables others. "If I didn't go to church, I couldn't do the job," Janice said. "It keeps me grounded." She repeated the thought, as if to reinforce the power of the protection she receives: "It keeps me grounded." Contributing to the church is important to Janice. Like the rest of her finances, though, her ability to tithe — give 10 percent of her income to the church — depends on how many people come to the casino and how much they leave in tips.
Most of the year, Janice can pay all the bills on time, but barely. During the most difficult stretch, from September to November, she had to cut back on food purchases. Four years before we got to know her, during a particularly bad dip, she turned to payday loans. It's easy to find payday and other "short-term" or "small-dollar" lenders in Janice's town (and nationally there are more "small-dollar" credit storefronts than McDonald's or Starbucks). Borrowers head to Cash Inc. on the commercial strip, Car Title Loans on a nearby street, Cash Xpress and Express Check Advance near the highway entrance, and a dozen national lenders available by telephone. CashNetUSA runs an ad in Janice's regional Yellow Pages that boasts of its "Easy five-minute application; Cash next business day; 4 out of 5 applications approved; nothing to fax, no paperwork." Janice borrowed from a payday lender for a couple of cycles, but she knew she had to get out of the trap. "You borrow $60 and you pay back $75. If you borrow $200, you pay back $250," she recounted. "But what if you then don't have the $250?"
When Janice wrote the last check in her checkbook, she didn't order another box. The local payday lenders require that, as security, borrowers hand over a signed check in the amount of the loan, dated for the next payday. If she didn't have any checks, Janice figured, she couldn't be tempted by the payday lender's quick money. Since then, Janice pays bills by money order and uses only a debit card to make purchases. Giving up her checkbook creates headaches, but it avoids the payday loan trap: "It's like an addiction if you have a checking account," she said.
When we sat down with her after church one Sunday afternoon in October, Janice told us she wouldn't be getting many tips that night. When fall arrives, children go back to school and parents who gamble in the summer hold onto their money for school supplies and clothes for the kids. Janice knew that they're "doing what they're supposed to," but it was a blow to her paycheck. Perhaps even more significantly, it was football season, and that meant instead of playing cards many gamblers were watching games on weekends. "Southern people love their football," Janice said. During the fall, Friday nights are high school football games, Saturdays are for college football, and Sundays are for the NFL.
Janice's tips also depend on whether it's an odd-numbered or even-numbered year. In odd-numbered years, the University of Alabama and LSU football teams head to Starkville, just over an hour's drive north of the resort, to play Mississippi State. Fans often visit the casino on their way home from the games. "Oh Lord from Zion!" Janice exclaimed. "They're going to stop at the casino, and they're going to be drunk, and they're going to play a lot." But the year we got to know Janice was an even-numbered one; both games were away, and her paychecks suffered.
On this particular Sunday, though, Janice didn't mind that many of her regulars would be home in front of the TV instead of at her card table. "You know Monday they got to go to work. That makes me so happy. Because I know if they go home, they're going to go to work. People need to work." Still, she worried about how she would get through the fall. Janice has lived with a volatile income for years, and she knew what was coming. By Christmas, money would be tight, not only for Janice but for others in her family, and they'd all struggle to come up with the extra needed for Christmas gifts. To save money, they draw names for Christmas presents so everyone doesn't have to buy gifts for everyone else. The previous year, Janice had drawn her aunt's name and gave her dishwashing detergent, toilet tissue, and other "useful things like that."
A Bundle of Worries
Janice, her son, and granddaughter share a single-wide trailer on a dirt road ten minutes from the center of town, about two miles from where she grew up. She's been there for almost thirty years. She owns the land where her trailer rests, plus another plot down the road (her monthly mortgage payment is about $400). The trailer is decorated with homey touches. Velvet curtains hang above a velvet-covered couch on the long wall of the sitting area. They form a cozy space with a television and coffee table, squeezed in beside the kitchen. On the adjoining wall is her favorite possession, a reproduction of an oil painting of magnolia blossoms, framed in thick gold-painted wood, flanked by two wall-mounted brass lamps.
In some ways, much has changed since Janice was a child. During the "Freedom Summer" of 1964, the year Janice was seven, hundreds of political organizers from across the country flooded to her part of central Mississippi to register voters and integrate schools. In June of that year, the Ku Klux Klan and local police murdered three of the activists after ambushing them along a county road fifteen miles from where Janice's casino now stands. The killings of James Chaney, Andrew Goodman, and Michael Schwerner became part of the story of Janice's childhood, just as they became part of the story of America's struggle for civil rights, leading up to Martin Luther King's march in Selma and the passage of the Voting Rights Act of 1965.
In 1969, when Janice was in seventh grade, her school district, along with a few others nearby, became the first in the area to integrate, some fifteen years after the Supreme Court's ruling in Brown v. Board of Education that school segregation was unconstitutional. "We didn't know we were trailblazers," Janice said with a laugh. "We were just going to school." Her parents were not "crazy about it, but they were more worried than they were anything else," she recalled. "But they knew times were changing." The teenage boys worked out their frustrations playing sports, Janice remembers, but the girls would sometimes fight, white girls versus black girls.
Racial divisions persist today. Black students have held reunions over the years, but it wasn't until 2015, forty years after Janice's graduation, that all of the students, regardless of race, met for a joint high school reunion. And, for all intents and purposes, this year's graduating class will still have largely segregated class reunions. While the county population is split nearly evenly between black and white, the schools aren't. The public schools are largely black, the private schools almost all white. Local churches are de facto segregated as well. The local White Pages lists more than forty churches in Janice's town of seven thousand, but it is difficult to find a local church that, as they say in Mississippi, is "blended."
The racial divide — and its consequences for education, housing, income, wealth, and jobs — is in large measure responsible for the situation that Janice finds herself in. But it is not all that preoccupies her.
To understand Janice's everyday worries, we have to zoom in closer. When we do, her week-to-week finances loom large. As Figure 1.1 shows, Janice's paychecks rose and fell with the seasons; Marcus's benefits were somewhat erratic, sometimes cushioning a low paycheck, sometimes amplifying a large paycheck. Some of these ups and downs were predictable — Janice knew that the football schedule was not in her favor so the fall would be especially bad — but much was not. Certainly Janice had no way of predicting the exact amounts of her paychecks and no way of knowing what was going to happen with Marcus's benefits. The volatility and unpredictability of her income is not the only challenge that Janice faces — and perhaps not the most fundamental — but it is a large part of her bundle of worries, and one that has been very hard for anyone outside her household to fully see or understand.
Spikes and Dips
There are some obvious causes of the swings in monthly income. At tax time, more than half of American households receive a refund, causing their income to spike. Twice a year, people who are paid every two weeks receive three paychecks in a month. But neither explains the total amount of volatility we saw from month to month. In our analysis, we removed tax refunds from the calculations in order to isolate spikes and dips that reflected income from earnings.
There are several ways to measure the remaining income volatility. One is to calculate the swing between the highest month and the lowest month as a percentage of average household income. Janice's monthly swing was about 70 percent (30 percent when looking only at biweekly paychecks as noted above). The average swing for households with comparable annual income to hers was actually higher, at 116 percent. For poorer households it was higher still, as high as 126 percent (meaning that if average monthly income was $1,000, families saw at least one month with income of, for instance, $1,730 and one month with income of $470).
A second measure of variability is the CV or coefficient of variation. CV takes a measure of the variability of monthly income (the standard deviation for a household during the year) and expresses that measure as a fraction of the household's mean monthly income. The advantage is that the CV can compare the volatility of households with different levels of average income. The disadvantage is that CV measures aren't intuitive. Comparing the CVs of different people's income provides context: a person who earns a $50,000 annual salary, paid every two weeks (and so having two months a year with three paychecks), with a $500 year-end bonus would be 0.18. Janice had a CV of about 0.21. The median for the entire U.S. Financial Diaries sample was about 0.34, nearly double that of our imagined salaried worker with a steady job.
Figure 1.2 shows a third way to measure income volatility: by counting the months when income is a certain amount above or below the average. We chose to look at variations of 25 percent above or 25 percent below the average. This benchmark is consistent with other researchers' measurements of year-to-year volatility, enabling us to compare what we were seeing with other research. It's also easy to imagine how a spike or dip of that magnitude could affect a household's spending and ability to plan. Counting spikes and dips gives a more conservative view than tracking the size of swings — which can be exaggerated by a few outlier months while most of the year is steady. Its advantage over the CV calculation is mostly in its simplicity.
Excerpted from The Financial Diaries by Jonathan Morduch, Rachel Schneider. Copyright © 2017 Jonathan Morduch and the Center for Financial Services Innovation. Excerpted by permission of PRINCETON UNIVERSITY PRESS.
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Table of Contents
Introduction: A Hidden Inequality 1
Worlds of Uncertainty
1 Earning 21
2 Spending 47
3 Smoothing and Spiking 65
How Families Cope
4 Saving 87
5 Borrowing 110
6 Sharing 130
New Ways of Seeing
7 Sometimes Poor 151
8 Secure and in Control 168