Association for Public Policy Analysis & Management

Panel: Income and Expense Volatility for Low- and Moderate-Income Households: Evidence for Policy and Practice

(Poverty and Income Policy)

Although there is strong evidence that income volatility has increased in the United States in the last four decades, less is known on how both short-term income volatility and consumption volatility affect material hardship, spending, and saving behaviors among low- and moderate-income households. Our panel fills this knowledge gap by beginning to answer the following questions: (1) What is the impact of income and expense volatility on low- and moderate income households? (2) How can policy help households withstand short-term financial volatility? The papers presented in this panel draw on nationally representative survey data sets and rigorous statistical methods to answer these questions. The first paper presents findings from a new Pew survey of over 7,800 American households that collects detailed data on the impact of financial shocks and volatility in income and expenses on household financial security. The paper finds that unexpected expenses are prevalent and are associated with negative outcomes for households across the income spectrum. These shocks represent imposing barriers to building contingency savings. The second paper uses data from a large-scale randomized controlled trial and associated survey data aimed at testing methods for increasing tax-time saving and focuses on low-income households’ experiences with income and expense volatility. The research tests the use of behaviorally-informed interventions aimed at leveraging the income tax refund as a means increase emergency saving in spite of the often turbulent financial lives of low-income households. With survey data from over 20,000 participants, the research provides insights into the barriers to saving and suggests a policy approach to overcoming them. The third paper reports findings from joint work between New York University and the Center for Financial Services Innovation and their survey of over 7,000 households (low- and moderate-income populations are oversampled) looking at the financial health of LMI households. The work reveals that a substantial portion of households find it difficult to predict income from month to month, and the study explores the impact of this uncertainty on financial health. The research further explores behavioral and attitudinal factors associated with financial volatility. Together, the papers offer key insights into the hardships faced by low- and moderate-income households when they experience short-term volatility in income and consumption. The presenting authors and discussant will critically examine current policy and practice that exacerbate financial volatility and offer key policy alternatives to smooth consumption and promote healthy growth of low- and moderate income households’ balance sheets.