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Families experience income and expense volatility when their cash inflows and outflows fluctuate over time, often in unpredictable ways. Volatility makes saving and asset building difficult, particularly in low-income households, for which one car accident or high-interest loan can create a cycle that potentially leads to unemployment or a debt spiral.
The purpose of this brief is to provide a high-level overview of month-to-month income and expense volatility in low- and moderate-income (LMI) households. The brief draws upon the results of the 2016 Household Financial Survey (HFS), which was conducted as part of the Refund to Savings (R2S) Initiative. This survey is particularly valuable because it captures a wide array of financial metrics on a population often difficult to study on a large scale, and it also tracks these metrics over time
Expense volatility can affect one’s ability to save money, and the HFS posed questions about this. Of the nearly 40% of respondents who reported moderate-to-high levels of expense volatility, a total of 68% reported that unexpected expenses made it hard to save with some regularity. Those respondents indicated that they found it difficult to save in some months, most months, or just about every month.