Financial Insecurity- It's not Just for Poor People Anymore

In Tuesday, the folks that brought you the Economic Security Index introduced the results of new survey data reflecting people's perceptions and experiences of financial insecurity over an 18-month period between March 2008 and September 2009. According to the authors of Standing on Shaky Ground: Americans' Experiences with Economic Insecurity, households experiencing major economic dislocations are, on average, three to four times more likely than otherwise comparable households to report being unable to meet multiple basic needs, such as food, shelter, and medical care. And these events usually don't happen in isolation. According to the report,

• About half of all the economic shocks experienced in 2008 reoccured in the same households in 2009; these “persisting” shocks are associated with higher levels of unmet need. In a given domain, households often experienced repeated shocks in close succession. For example, more than a third of households that experienced a shock in employment or medical expenses experienced multiple shocks in the same area.
• Of those Americans who reported persisting disruptions of employment, three-quarters also experienced persisting shocks in at least one of the other three domains of economic life.

So, as it turns out, financial insecurity is a lot like oversleeping your alarm. Most mornings, your alarm rouses you from your slumber and you go about your morning routine with ease. You watch CNN as you eat your breakfast and take a few minutes to pay special attention to your cat as your husband finishes shaving in the bathroom before you take over (spousal coordination is critical to maintaining your anticipated departure time, particularly if you have only one bathroom). You usually plan on taking the 8:30 bus knowing that you frequently need a little buffer and the 8:45 will still get you to work at a reasonable time.

Today, though, you've overslept. You have no hope of entering the bathroom anytime soon as your husband is well engaged in his routine at this point. Once you've managed to hose off and throw some clothes on, you realize that at this time of the morning, the busses are running much further apart. As are the trains. The 15 minute buffer you conscientiously build into your morning to manage more minor upsets has been fully exhausted. You finally make it to work but you're hopelessly behind and do less than stellar work the rest of the day just to get done what needs to be done. Being late and producing work of questionable quality does not win you any points with your boss who lets you know that by neglecting to give you your annual raise. You really needed that money to buy a better alarm clock.

Rather than occurring in isolation, bad begets bad, and destabilizing events reverberate through other aspects of your day, or life. For people living in poverty, this condition is persistent. A medical emergency can mean loss of wages or even loss of a job. Your kids go to underperforming schools because you can only afford to live in an underperforming neighborhood. Like producing sub-par work because that's all the time you have to accomplish, having poverty of resources means having a poverty of options and living with results that are less than ideal at best.

The recession has expanded this experience to a much broader set of households. The report also finds that,

• In the 18 months from March 2008 to September 2009, fully 93 percent of households experienced at least one substantial decline in their wealth or earnings or substantial increase in nondiscretionary spending, most often for medical needs or assistance to family members.
• Nearly seven in ten households saw their earnings substantially fall or their nondiscretionary expenses substantially rise.
• During this 18-month period, 23 percent of households reported a drop of at least a quarter of their annual household income.
• More than half of families with incomes between $60,000 and $100,000 that experience employment or medical disruptions report being unable to meet at least one basic economic need.

Assets provide a buffer between families and these events, but the persistence and clustering of destabilizing events erode the buffers that families may have. And for most families, don't even have the financial equivalent of 15 minutes in their morning schedule to deploy. According to the report, about 30% of families could go a month or less without experiencing hardship if their income stopped. What this shows is that "vulnerability" isn't code for "poverty" and "income" isn't the same as "assets." Policies that increase the ability of households to buffer against the unexpected are critical for all families, regardless of income, but especially for those least prepared to absorb these shocks. We have some ideas about where to start.