From the Community Action Association of Pennsylvania (http://www.thecaap.org):
Recent studies show middle and lower-class Americans have shifted focus away from the traditional American Dream of upward mobility. Americans are instead striving for a stable income without unpredictable spikes and dips that vary from month-to-month.
A 2015 Pew Poll surveyed Americans asking if they would prefer “financial stability” or the ability to move up the income ladder.” The result was a 92% response rate preferring financial stability over upward mobility.
Another study entitled The Financial Diaries focuses on the finances of low- and moderate-income households in the US. The study followed the spending habits of 235 households with a wide range of geographic and demographic qualities. Matching their findings with the Pew Poll, the Financial Diaries asked the same question of their participants, finding a 77% preference for financial stability.
These studies reveal a broader issue in the middle and lower class: income volatility. The Financial Diaries reported huge variances in household income on a month-to-month basis. While households made enough money for one month to pay off all expenses and save the rest, savings would often deplete the next month when an unexpected income dip occurred. These variances in income are the result of unreliable employment, including hourly waged jobs, the “gig” economy, tipped jobs, or commission based professions.
People living with unpredictable income exist throughout all income levels. The JPMorgan Chase & Co. Institute ran a sampling of 100,000 Chase bank accounts in 2015 to test the significance of income volatility within accounts. They concluded that “Volatility was even greater on a month-to month basis than on a year-to-year basis” and the “typical household did not have a sufficient buffer.”
A common assumption is that low-income people are poor because they don’t know how to save, or practice spending habits that aren’t “smart.” As the chart from The Pew Charitable Trusts (above) shows, saving while experiencing income volatility is harder, especially for those with low-income. Spending habits do not deplete savings, unstable income patterns do.
Upward mobility for American households is a dream many have traded for the basic need of a steady paycheck. To learn more about income volatility, check out this video.
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