The voices of Urban Institute's researchers and staff
December 7, 2016

Stabilizing children’s lives when family income fluctuates from month to month

December 8, 2016

Over the next two weeks, Urban scholars are reflecting on how different aspects of children’s lives affect family instability and their healthy development. This team of scholars recently released a report laying out insights from an exploration of what research is needed to stabilize the lives of children and families. This work is part of Urban’s Kids in Context Initiative.

Many families in the United States have income that fluctuates considerably from month to month, but strategies are emerging to help families weather this instability. 

When researchers asked 235 low- and moderate-income families to keep detailed financial diaries, they found that families had an income dip of 25 percent or more for 2.7 months of the year (averaged across all families) and an income spike for another 2.7 months of the year. Their spending also fluctuated from month to month, but often not when income fluctuated, leaving families with financial shortfalls and uncertainty.

National data also show that many families have unstable incomes. Almost 40 percent of adults living with children lose a quarter of their income at least once a year. Rates are even higher for adults with children whose incomes are in the lowest fifth of the population. Of this group, 20 percent lose half or more of their income at least once a year.

Imagine being a parent losing that amount of income while trying to keep your children stable, dealing with whatever caused the income loss, and desperately trying to keep it from snowballing into a major family crisis, such as an eviction. Volatile monthly incomes make it more challenging to practice sound financial practices, such as saving, budgeting, getting credit, and accessing traditional financial resources. Volatile incomes also add to parental stress, affecting parents’ ability to manage their lives.

And imagine what children in these families must be facing, dealing with their parents’ stress and possibly faced with not having enough to eat, losing their home, or changing schools. Each of these changes adds more stress and challenges to their lives. And we now know that such instability can make it hard for children to develop and thrive.

We are part of a team that examined what we knew and what we needed to learn to help stabilize families. In a report we recently released, we highlight that families rely upon various strategies to deal with instability in income and expenses. 

  • Some families rely on emergency or short-term savings. Savings and other assets can cushion families from hardships after income shocks, though many families do not have adequate savings to buffer them. 
  • Others rely on loans or gifts from friends and family. Such informal social networks play a very large role in stabilizing families, although sometimes friends and family add further stress to families living on the edge. Interviews with families living on $2 a day revealed challenges ranging from a woman losing her job when a housemate used up all the gas in a shared car to abuse of children living in a relative’s household.
  • Some rely on short-term cash options, such as credit cards and payday loans, or delay paying bills, all of which can have long-term costs.
  • Some rely on safety net programs providing cash assistance, nutrition assistance, and Medicaid. The public safety net stabilizes many families, but is not designed to accommodate such rapid changes in income, suggesting redesigning these programs could be a potential strategy.

While we need to learn more about these strategies and who uses them, it is likely that some families don’t have access to all of them.

What can we do to help families smooth out income stability?

  • Redesign programs that encourage asset building so that they include not only long-term goals (e.g., saving for a house or an education), but also short-term goals (e.g., temporary savings accounts from which families can withdraw without penalty). Can we develop and test interventions to help people accumulate short-term savings (e.g., “side car” savings accounts) alongside their longer-term savings accounts? Can savings clubs or other strategies encourage short-term savings?
  • What can we learn about effective strategies that make funds available on a short-term basis without the severe penalties and high-interest charges found with payday loans and credit cards?
  • Can we help people with poor credit ratings get better access to credit? Can low-income families be better integrated into the larger financial system?
  • Can we design innovative financial products and approaches to help families deal with income instability? For example, can new apps such as Even help people smooth out their uneven paychecks so they can meet expenses?

Testing such approaches could help us learn more about ways to smooth family instability and, in doing so, support healthy child development. 

Adam Archibeque, left, who was let go from a downsizing oil field operator, sits in his home with his wife Misty and three of their four children on March 27, 2015 in Portland, Texas. Archibeque and his wife Misty recently had quintuplets, making his current unemployment even more costly. Photo by Spencer Platt/Getty Images

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