Income inequality in the United States is growing, but the most common economic statistics hide a significant portion of Americans’ financial instability by drawing on annual aggregates of income and spending. An article on the Harvard Business Review adds: Annual numbers can hide fluctuations that determine whether families have trouble paying bills or making important investments at a given moment. The lack of access to stable, predictable cash flows is the hard-to-see source of much of today’s economic insecurity. We came to understand this after analyzing the U.S. Financial Diaries (USFD), an unprecedented study to collect detailed cash flow data for U.S. households. From 2012 to 2014 we set up research sites in 10 communities across the country. The USFD research team engaged 235 households that were willing to let us track their financial lives for a full year. We tried to record every single dollar the households earned, spent, saved, borrowed, and shared with others. […] Our first big finding was that the households’ incomes were highly unstable, even for those with full-time workers. We counted spikes and dips in earning, defined as months in which a household’s income was either 25% more or 25% less than the average. It turned out that households experienced an average of five months per year with either a spike or dip. In other words, incomes were far from average almost half of the time. Income volatility was more extreme for poorer families, but middle class families felt it too.
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