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Catherine Read

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by Catherine Read

The Financial Diaries: How American Families Cope in a World of Uncertainty

The Financial DiariesThe most fundamental way to reduce the volatility that Americans face is through improvements in job quality . . . the Great Job Shift has resulted not only in lower wages but also unpredictable scheduling, inadequate hours, and less job security. Alongside those challenges are diminishing opportunities for training and advancement, and an erosion of benefits such as paid leave and employer provided health care and retirement coverage.

Jonathan Morduch and Rachel Schneider presented the findings contained in their book The Financial Diaries: How American Families Cope in a World of Uncertainty at the Aspen Institute’s Summit on Inequality & Opportunity held in Washington, DC, on March 16, 2017.

Researchers followed 235 low and middle-income families for one year and delved into their daily decision making about how they managed their household finances. They were from various regions of the country and represented a variety of family structures, but at least one member of every household (and often more) were working.

This is an excellent companion book to Lisa Servon’s The UnBanking of America which also addresses how working people are using every means at their disposal to make ends meet – often without the help of traditional financial institutions. In both books, the strength of the research is in the qualitative approach to understanding the real world context of decision-making. These are people’s stories – real people caught between a rock and a hard place. Data is limited in what it can show us – patterns and practices – but it’s not telling us WHY.

What Morduch and Schneider found is that people are struggling with variable income that has spikes and dips that don’t mesh with their financial obligations. Even families whose annual income is sufficient to cover their basic living expenses have months where they dip below the poverty line. Throughout this book the importance of the Earned Income Tax Credit (EITC) kept coming up as the saving grace for families to pay down debt or get back on their feet in February and March of each year.

Living hand to mouth does not leave room for unexpected healthcare costs and car repair. Those were the two things that most often imploded a fragile budget because they are necessities. A car to get to a job was a must have for the majority of people in this research group. Which only points to the EPIC FAILURE of this country to invest in better transportation options. And health care costs for those who are uninsured are still forcing people into bankruptcy over unpaid bills.

This book covers so much territory in 178 pages. What keeps hard working people down are a confluence of factors – not just one or a few. Some of these we can lay at the feet of businesses who have shifted a certain level of risk from their own bottom lines and placed it on workers – with “just in time” staffing, variable hours and schedules, and no paid benefits. Companies now worship at the altar of profit margins and quarterly returns for shareholders – not investing in their employees as Henry Ford once did so that he created a class of consumers who could purchase what they produced. Other factors include some bad public policy.

Most government savings policies – especially tax deductions for retirement savings and housing – were directed toward high-wage employees, not janitors and cafeteria workers. In 2013, the United States spent almost $400 billion in federal tax subsidies for homeownership and retirement savings. That was 30 percent of all federal tax expenditures. About 70 percent of the savings from the mortgage interest and property tax deductions went to the top 20 percent of earners. Almost none went to the bottom 40 percent.

The reality of what people are doing to get by should give us all pause. Not enough people in our communities are thriving and the amount of energy required just to survive is not some great American Dream. It is a constant and stressful nightmare that is being handed down from one generation to the next in our post WWII economy. Wage stagnation began in the early 1970s and the picture for the future is bleak unless significant changes are made in the creation of better jobs with basic benefits, public policy that spreads out benefits to all income groups, and the willingness of financial institutions to change how they assess people’s credit worthiness and their investment in services to better support low-income working class people.

This book points out time and again that there is a difference between “insolvency” and “illiquidity.” Yet despite existing, and very sophisticated technology, and access to reams of personal financial data, financial institutions appear to have few incentives to better meet the needs of millions of working people who are struggling to match up their income to their expenditures on a weekly and monthly basis. This economic uncertainty and instability has been labeled in sociological terms as “precarity” defined as “a precarious existence, lacking in predictability, job security, material or psychological welfare. The social class defined by this condition has been termed the precariat.”

This precariat are millions of working people in this country – friends, neighbors, colleagues, co-workers and family members. We can’t begin to solve problems we don’t fully understand. This book goes a long way in describing the lives of people all around us in a way they would not likely share with us. That is a very powerful thing in seeing these issues not as ideological debates about masses of nameless faceless people we don’t know, but as humanizing issues of public policy down to the devastating financial impact of a broken down car on a neighbor’s ability to survive in very real terms.

I highly recommend this book. I think it will benefit every person who reads it.

Filed Under: Blogging, Good Books, Political Tagged With: Aspen Institute, Banking, EITC, Financial Institutions, Healthcare, Jonathan Morduch, Precarity, Rachel Schneider, tax reform, Working Class, Working Families

by Catherine Read

The UnBanking of America – Lisa Servon

More than sixty million Americans have no FICO score at all because credit bureaus use data they cannot provide. And if you don’t have a credit score, it can be very hard to get a loan, rent an apartment, or convince an employer to hire you.

Driving home on Tuesday, I heard an interview on NPR with Lisa Servon, a professor of city and regional planning at the University of Pennsylvania. She was talking about her book and I was so impressed and intrigued that I stopped at Barnes & Noble to inquire if they had it. Ten copies had arrived that day and had not made it out to the Sociology section yet. One was brought to me from the storeroom.

If you only read one book this year, it should be this one. Most of us truly have no idea of how banking has changed since many of us opened our first bank accounts. Servon talks about how the industry as changed since she opened a pass book savings account in her hometown as a child in 1971:

“Banks like Pulaski still exist but have dwindled in number: very small banks (those with less than $100 million in assets) decreased by 85 percent between 1985 and 2013, while the number of very large banks (those with more than $10 billion in assets) nearly tripled. Local banking is now the exception rather than the norm . . .”

Servon had been doing research on consumer financial services when John Coleman, President of RiteCheck, was brought to one of her classes by Joy Cousminer, founder of Bethex Federal Credit Union. What she believed she knew about check cashing services and payday lenders was turned on its head by Coleman’s description of the community he served in the South Bronx and Harlem and why those services are needed. RiteCheck was founded in 1949 by his father-in-law Howard Stein, who at 92, still comes into work three days a week.

As Sevron describes it in her acknowledgements, “This book began with a question that turned into a quest. And, like all good quests, this one involved a journey, a series of vexing obstacles, a few riddles, and a terrific group of trusty sidekicks and wise elders.”

Understanding that quantitative data wasn’t telling the whole story of how the “unbanked” and “underbanked” used these “alternative financial resources,” she asked John Coleman if she could work as a teller for several months at RiteCheck to gather more qualitative data. Her research working at a branch location in the largely Latino community of Mott Haven relied on her co-workers’ deep understanding of the community and their long term relationships with their customers. Read More

Filed Under: Blogging, Good Books, Political Tagged With: Banking, Consumer Financial Protection Bureau, Financial Services, FinTech, Lisa Servon, Pay Day Lender, RiteCheck, Unbanked

Catherine S. Read
I believe in the power of community and the ability of one person to make a difference.

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