Singletary: Study looks at impact of income volatility
By Michelle Singletary
Published: May 12, 2017, 6:00am
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Twin reports by the Pew Charitable Trusts substantiate what too many people know first-hand.
Despite a better economy, a lot of families are struggling financially.
Pew has been studying the impact that income volatility and financial shocks can have on people’s ability to budget and save. For the two new reports, Pew analyzed its own Survey of American Family Finances from two years — 2014 and 2015.
It’s important research that’s much needed in public policy debates. For instance, the health care discussion is about access to quality care and the ability of families to pay for that access. But if we don’t fully understand the economic instability that plagues many families, politicians end up with a misguided sense of what makes for “affordable” health insurance.
The Pew research gives richer context to bewildering utterances from elected officials who claim that some people are not prioritizing health care in their personal budgets.
In defense of the GOP’s first attempt to repeal and replace the Affordable Care Act, Rep. Jason Chaffetz of Utah said: “Americans have choices. And they’ve got to make a choice. And so, maybe rather than getting that new iPhone that they just love, … maybe they should invest in their own health care.”
People are not choosing to stay sick or avoid preventive care because they’d rather spend the money on a glitzy new phone. With stretched and unsteady incomes, they are choosing to pay rent or fix the car so they can get to work and not lose the job that keeps food on the table.
In its report on income volatility, Pew looked at those people who experienced a particularly strong pay swing, which was defined as a year-over-year change in income of 25 percent or more.
Pew found that at least one in four households — regardless of income, education and race — saw significant income shifts. And the swings created insecurity, whether people earned more or less.
That makes sense. If your hours on the job were reduced and then restored, you may still feel uneasy about the possibility of a future cutback.
Pew found that, at the median, households with income gains saw an increase of $20,500 and those with drops lost $25,000. But think about this: The median households with a loss experienced a whopping 49 percent decrease in income.
And it won’t surprise you that a loss of income of 25 percent or more hits lower-income households the hardest. .
Digging into the financial lives of all households should change the debate about economically fragile families. Pew is finding that income swings and financial emergencies are impacting families at nearly every income level. It’s a very universal experience.
In the second report, Pew examined how financial shocks — a job loss, illness, death or major car repair — can spin people out of financial control.
Almost 60 percent of U.S. households experienced a financial shock in 2014, and many of them struggled to regain their footing.
Half of survey respondents — no matter the income level — who had the money to handle a typical financial emergency of $2,000, experienced financial difficulty in the wake of the event, according to Pew. Even if they had a savings cushion of $4,000 to handle an emergency, 43 percent still struggled after such a blow.
The takeaway from both reports is that many families are walking a financial tightrope. Relying on this kind of insight, we can challenge policymakers to develop better public policies and programs that will help improve household financial security for us all.
Michelle Singletarywelcomes comments and column ideas. Reach her in care of The Washington Post, 1150 15th St. N.W., Washington, DC 20071; or singletarym@washpost.com.
