We analyze monthly take-home income, spending, and account balances of over six million families’ Chase checking accounts between 2013 and 2018. We measure volatility with the Coefficient of Variation (CV) of monthly total take-home income. In addition to absolute volatility, we also measure income and spending spikes and dips separately. We examine the extent to which levels of volatility differ for sub-populations across the income spectrum, age, gender, and cash buffer. Finally, we empirically estimate the minimum levels of cash buffer families need to weather adverse shocks to their savings including income dips and spending spikes.
We find that month-to-month income volatility has remained relatively constant over the past six years from 2013 to 2018. The level of income volatility remains high with those at the median level experiencing a 36 percent change in income month-to-month. Similarly, month-to-month spending volatility has also been flat during this period, with its level 15 percent lower than that of income but still high. In addition, families experience large income swings, including spikes and dips, in five months out of a year, where income spikes are twice as likely as dips and most common in March and December. Families with the most volatile incomes experience larger but not more frequent swings than those with less volatile incomes.
There is wide variation in the levels of income volatility families experience and is greatest amongst the young and those in the highest income quintile. However, low-income families experience larger and more frequent income dips, an indication of downside risks. Finally, we find that families need roughly six weeks of take-home income in liquid assets to weather a typical and simultaneous income dip and expenditure spike. More than 60 percent of families lack a sufficient buffer to do so. In follow up work underway, we examine the impact of the 2019 January government shutdown on employees’ consumption and savings pattern as a case study of negative income shock. Altogether, our results offer important empirical guidance for the minimum levels of liquid buffer families need and implications for strategies to improve families’ financial health.
October 23, 2019