Author Topic: The Financial Diaries, a mustachian must-read  (Read 968 times)

Hadilly

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The Financial Diaries, a mustachian must-read
« on: June 10, 2017, 10:05:44 AM »
Well, my fuzzy faced kin,

I have a new book to recommend, The Financial Diaries: How American Families Cope in a World of Uncertainty. Written by Moduch, an econ and public policy professor at NYU and Schneider, a senior VP at the Center for Financial Services, the 2017 book is a result of a study in which 35 families with at least one wage earner were followed for a year. All spending and income was tracked and participants also discussed why and how they made their financial decisions.

This kind of very granular analysis allowed for some insightful conclusions. First of all, the traditional financial lifecycle, start out, earn money, make more money, save and retire, just isn't playing out for these folks. Why? Seems like the switch to hourly work and irregular shifts introduces so much uncertainty that a great deal of energy goes into making financial decisions and unforeseen needs derail saving plans. Income volatility screws up that smooth upward glide path. Income volatility has grown faster than income inequality in recent years.

The book goes into the strategies families use to deal with or smooth volatility, how many lower income and even middle class families can spend part of the year in poverty and the toll that exacts, and why wealth building is tough.

I found the Pew study amazing. They asked over 7,00 Americans which would they choose, stability or mobility? 92% chose stability. That is a pretty shocking turn away from the traditional American dream of upward mobility.

The authors introduce the concept of spikes and dips in income. For the families surveyed, for about it five months of the year, their income wasn't average. The income volatility makes it even harder to be poor, because you simply don't have money when you need it.

As a mustachian and a curious person, I generally enjoy reading financial stories. This was particularly compelling because it details the ways policy affects folks (the impact of the EITC for example), why people use tax withholding or a hard to reach and faraway bank as a saving strategy, the need for financial literacy, and the role community can play as a safety net.

The authors do a good job of suggesting ways government and industry could help poor folks, but in the current political climate, I don't think those suggestions will be implemented.

Of course, you see people making fiscally imprudent decisions, spending $1000 on Christmas presents when that represents a huge percent of their annual income, but most people are not extravagant.

It made me reflect on the role that spikes and dips play in my life. The main difference is that we have a lot of resilience in our fiscal ecosystem, so the spikes are a bonus that get shoved into investments, rather than a chance to play catch up with bills. I have also absorbed a lot of frugal principles that inform my quotidian spending. So if I earned $35k a year and that income was volatile, I would like to think that my Christmas would consist of baking some cookies, going to a free concert and writing some heartfelt, home made cards, not blowing 1k to feel middle-class and non deprived.

Anyway, a hearty thumbs up. I think this is a valuable book that we should all read and start talking about together. Look forward to hearing from others about it.