The Fragility of Finances

SF Fed Community Development's David Erickson and Laura Choi sit down with President John Williams to discuss the fragility of American household finances and how to get more families on the road to economic opportunity (video, 2:23).

Most American households do not have enough savings to pay an unexpected $400 expense, according to a recent Federal Reserve survey. It’s one of the findings we discuss in the new book What It's Worth and one of three distinct stories told by our Community Development team in the 2015 annual report, What We've Learned...and why it matters. Financial insecurity and income volatility affect every facet of life including health, housing, employment, and education. Helping more families get on the road to economic opportunity requires holistic solutions.


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John Williams:

You know at the Fed, we often think about things in terms of the macro economy—unemployment, inflation, and interest rates. But this new book, What It's Worth, really focuses in on the individual families and households and their financial well-being and situation. What are some of the key lessons and learnings we got from the study and looking at what's happening at the individual family level?

David Erickson:

If you think about it, the majority of American households, and this is from a survey that the Federal Reserve does, experience enough of a fragility in their household finances, that if they were hit by a $400 expense, they'd have to either borrow money, sell something, or just simply not pay it. If you think about how fragile that is, what happens if you have an unexpected medical expense, you have to pay for school, you have something that comes along that you just weren't really expecting. That really could send a family into a tailspin, and we're talking about a majority of Americans, not just low-income families. This is something that aggregates to have a very powerful effect on the macro economy.

Laura Choi:

We have a much more nuanced and better understanding of the real financial lives of lower-income Americans. The picture we're seeing is really a story of income volatility. The reality of a steady, bi-weekly paycheck is just a thing of the past for most low-income families. We're seeing a lot of spikes and dips in income, and there's a real mismatch between when the income comes in and when the expenses hit, so it's leading to a lot of different coping strategies and just a lot of challenges placed upon low-income households.

John Williams:

What's one of the things you learned by bringing together people from all types of fields that you might not have known otherwise?

Laura Choi:

I think one of the things we've learned from this book is that everyone has a part to play in devising solutions that lead to financial health. People experience financial insecurity in every facet of their lives, whether it's physical stress that leads to poor health or living in inferior housing that limits employment or educational opportunities, and in the same way, we need to come up with solutions that are similarly holistic and really help families achieve financial well-being so they can get on that road to economic opportunity.


What It’s Worth: Strengthening the Financial Future of Families, Communities and the Nation

An Overview of Our 2015 Annual Report

Health and Prosperity

Creative Placemaking

Redefining the Labor Market

The Future of Cash

Transforming Financial Services

Regional Influences on Monetary Policy

Technology for Today’s Fed

The Fed's Balance Sheet

China in the Global Economy

Becoming a Destination Employer

2015 Annual Report: President's Letter