1 In 5 Americans Experience Income Volatility

Income

Last year, I shared my thoughts with Money, Inc. on the role that financial institutions play in income volatility. After delving into the topic of income volatility further, Netspend was determined to learn more about this important issue –specifically, how prevalent it actually is, the challenges it presents, and how everyday Americans can manage it. As a result, we surveyed over 2,700 households to get a clearer understanding of this topic. The findings concluded that, surprisingly, approximately one in five Americans experience income volatility– many each month.

By its simplest definition, income volatility is an unpredictable change in one’s income. Depending on who you ask, the definition varies based on the period one is in the “income volatility” state. Pew Charitable Trusts looks at year-over-year changes in annual income, while the Tax Policy Center has studied household incomes that spike above, or dip below, their average monthly income for one to six months in a year. Some parties even define income volatility as income fluctuations lasting over two years.

Why It Matters

Understanding income volatility is a necessary part of understanding today’s overall economic trends and underlying behaviors of American society. Income volatility is more prevalent today than ever before due to two primary factors: (1) diversification of payroll systems and fragmented employer practices; and (2) the rising number of people participating in the gig economy holding multiple jobs. Americans no longer rely on one 9-to-5 job, and many are picking up “side jobs” to supplement their primary income. Uber and Lyft driving are a common example of side jobs playing a role in changing incomes. However, it goes beyond these more visible examples – day traders, freelancers, self-employed attorneys, construction workers and substitute teachers are all traditional careers many Americans are adding to their multi-job resume. The flexibility offered by the gig economy, and the once-traditional professions listed above, have benefitted many individuals and households; however, they often create greater income fluctuations. In fact, Netspend’s survey found that 57% of those who experience frequent income volatility deal with it every month.

Income volatility can also occur when employers don’t offer a regular, or fixed, payment structure for their employees. Unfortunately, only 6% of respondents reported that their employer provides resources to help them manage income volatility. More and more, innovative tools and services are becoming available for payroll departments from companies like DailyPay and PayActiv. These companies are providing solutions to employees which give them greater control over the timing of their paycheck and access to their earned wages earlier. Additionally, many organizations are choosing to implement financial wellness programs in the workplace to support employees by creating greater awareness of financial literacy. Not only are these efforts important to the employee who is facing an unstable income, it is now becoming even more important for employers who need to be more competitive in terms of employee retention and benefits – Netspend’s survey found a surprising 40% of respondents planned to find a new job within the next year.

The Burden of Income Volatility

The impact of income volatility extends into many facets of an individual’s life and household. Not only do 59% of individuals experiencing income volatility have a difficult time saving money, 48% report they are also in debt. The inability to save funds each month, combined with the added burden of debt, means making important financial decisions, behaviors and trade-offs difficult – for example, saving for retirement vs. paying off existing debts. In fact, respondents reported several frequent challenges related to income volatility, including:

  • 49% reported they were unable to save for retirement
  • 48% reported they were unable to afford vacations
  • 46% reported they were unable to pay for an unexpected medical bill

Conclusion

Netspend’s report on income volatility offers additional insight into the ways it impacts Americans and how they can best mitigate its daily burdens. Some tips for those living with an unpredictable financial situation include:

  • Creating a budget to help cut unnecessary expenses and determine baseline spending
  • Tracking cash flow using an app like Mint or Every Dollar
  • Finding a savings account that offers a high interest rate or special rates
  • Saving seasonally and taking advantage of windfalls like annual tax returns or one-off bonuses
  • Using multiple accounts to compartmentalize funds between essential monthly expenses, medical bills, etc.
  • Paying off high-interest debt with bigger paychecks

Given income volatility’s prevalence across the United States, it is critical to understand the best way for individuals and households to manage these challenges. It is also essential that employers and financial institutions begin to implement new and more user-friendly solutions that help address these concerns. While many individuals will experience income fluctuations at some point in their lives, these challenges aren’t insurmountable and there are a growing number of resources and new capabilities becoming available to help navigate the income volatility dilemma. To learn more, please read the full Netspend Income Volatility Report here.


Add Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.

How Dirk Nowitski Achieved a Net Worth of $120 Million
10 Things You Didn’t Know About Mark Walter
CEO Wendy Kopp
10 Things You Didn’t Know about Wendy Kopp
How Gary Payton Achieved a Net Worth of $120 Million
Discover it card
The 10 Best Credit Cards for Students in 2019
Omega Healthcare Investors
Why Omega Healthcare Investors is a Solid Dividend Stock
World of Hyatt Credit Card
10 Benefits of Having The World of Hyatt Credit Card
PPL Corporation
Why PPL Corporation is a Solid Long-Term Dividend Stock
Seamless Virtual AI Assistant
How Close Are We to Seamless Talking AI Assistants?
Wearable ECG
How Will Wearable ECGs Affect Our Future?
Computer Vision
What is Computer Vision and How Does it Impact the Future
Pervasive Computing
What is Pervasive Computing and How Does it Factor Into Our Future
Boston Chops Steakhouse
Why Boston Chops is One of Boston’s Finest Steakhouses
10 Reasons to Stay at The Dominick in NYC
Grill 23 Boston
Why Grill 23 is One of Boston’s Finest Steakhouses
Intercontinental Times Square
10 Reasons You Should Stay at the Intercontinental in Times Square
2000 Ferrari Rossa by Pininfarina
A Closer Look at The 2000 Ferrari Rossa by Pininfarina
1956 Ferrari 250 Testa Rossa
A Closer Look at The 1956 Ferrari 250 Testa Rossa
1967 Ferrari 330 P4 Berlinetta
A Closer Look at The 1967 Ferrari 330 P4 Berlinetta
1968 Ferrari Dino 246
A Closer Look at the 1968 Ferrari Dino 246
What to Watch For: A Collector’s Interview
A Closer Look at the Breitling Bentley Flying B No. 3
2019 Breitling
Benefits of Authorized: Avoiding the Grey Market
Breitling Emergency II Titanium
A Closer Look at the Breitling Emergency II Titanium