The Financial Diaries Adds Details To Data, Possibilities For Credit Unions

This look at the daily financial lives of everyday Americans could spark strategic thinking for credit unions serving the growing gig economy.

 
 

The Financial Diaries: How American Families Cope in a World of Uncertainty puts detail to data about how low- and moderate-income families dodge and deal. The just-released book is a resource for credit unions looking for tactics to help members facing the same challenges.

The Financial Diaries tracks the daily spending habits of 235 low- and moderate-income households and is authored by New York University professor Jonathan Morduch and Rachel Schneider, senior vice president of the Center for Financial Services Innovation.

A group of 10 researchers spent a year with each of the diverse group of subjects in New York, California, Ohio, Kentucky, and Mississippi, working together in a project called the U.S. Financial Diaries (USFD).

In an online seminar accompanying the book’s release, Morduch said, “Unemployment rates, debt and savings, all that data is available. Those are snapshots. What we tried to construct was something like a movie, where we went behind closed doors to track what was going on in real time over a year. That allowed us to tell stories of tensions, opportunities, and achievements.”

The USFD says its intent is to help inform the creation of new policies, programs, and products for a broad range of Americans. What they found is that for many of these families, it’s all about cash flow. 

The average family in this group experienced 2.2 spikes and 2.4 dips in income during the year, meaning that for 4.5 months their income is far from their average. For an Ohio big rig mechanic who worked on commission at a truck stop, his uneven income made it so hard to budget that he eventually took a new job that paid less money but had a fixed salary that made planning possible.

What could a credit union do to help such a member? How about a lend-and-pay program that fills in the gaps for a worker with a well-established work record? This accomplished mechanic was able to find another gig, but in today’s gig economy, that cash flow problem is becoming a reality for growing millions of Americans.

The Financial Diaries also outlined other coping mechanisms, for example:

  • A casino card dealer whose income varies with tips puts her cash in a credit union that’s a long drive from her home with limited hours and no card access.
  • A non-profit organization employee has his mother hold on to his savings for him.
  • A building superintendent keeps three money buckets: $100 in his wallet, cash for his property taxes, and some for emergencies. He spent more than $20 on only six occasions during the year he was followed, and does his grocery shopping at convenience stores.

These are disciplined spenders who often have little access to favorable financial solutions. And if they do have access, they are not aware of it or comfortable using them.

Credit unions can help members build financial discipline and resiliency as well as smooth over rough spots by, for example, targeting one specific need the financial cooperative can effectively address with its products or services, new or existing.

The Financial Diaries doesn’t offer the solutions as much as sets the framework for strategic discussion. But solve one of those problems and that solution might lead to another, which leads to another, and so on until there’s a sea change.

That kind of thinking harkens to the “adjacent possible” theory introduced by biologist Stuart Kauffman in 2002 and now used by writers and strategists like James McQuivey in Digital Disruption: Unleashing the Next Wave of Innovation.

One small, doable step at a time.