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028: How American Families Are Mastering Their Money in a World of Uncertainty with Rachel Schneider

Rachel SchneiderHave you ever wondered what either helps or hinders Americans from becoming masters of their money?

That’s what we are talking about today, with my guest Rachel Schneider.

Today’s show is very different than what we’re used to. We’re taking a macro look at your average American and trying to understand how they can become (and what’s maybe preventing them from becoming) Masters of Money.

My guest today is Rachel Schneider is the co-author of The Financial Diaries: How American Families Cope in a World of Uncertainty (available in bookstores or on Amazon now). She’s also the Senior Vice President at the Center for Financial Services Innovation.

CFSI is the authority on consumer financial health, leading a network of committed financial services innovators to build better consumer products and practices.

Their mission is to improve the financial health of Americans, especially the underserved, by shaping a robust and innovative financial services marketplace with increased access to higher quality products and practices.

Today is #FinHealthMatters day – a day where the FinCon community and CFSI join forces to bring awareness to America’s financial health. All across the financial blogosphere and podcast space today folks are sharing personal stories of why Financial Health matters.

I encourage you to check out the hashtag #FinHealthMatters and read/listen to all of the stories being shared.

Listen to This Episode with Rachel Schneider

I hope you enjoyed that. A big thank you to Rachel for giving us the gold today.

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The Why and How of The Financial Diaries

This book was a result of a research project begun after the financial crisis. The funders of the project held a ton of data on Americans and their finances, but the crisis showed that underneath all of the data, there was a lingering problem of insecurity among the average American.

The book came about as Rachel and her colleague began to study this data and try to dig out what was really true about Americans and their finances.

The team working on the book placed 10 researchers in 5 different states, with the goal to get an understanding of these families and their finances, whether they were middle class, lower middle class, or even on the poverty line. Income levels stretched from $10,000 all the way up to $135,000. There were 235 families included in the research.

The Results of the Project

At the end of the project, it was clear that American families are struggling. Of course, we all know that our economy has changed. We can all think of ways that it has affected us personally. But the biggest change to our economy is in the labor market.

Job security doesn’t mean what it used to mean. You can have a full-time job now and still have varying income, whether that’s due to seasonality, differentiating hours, commissions, no paid sick leave, etc. Combine these issues with stagnant wages for the past several decades and the rising costs of living, and you can see why families are struggling.

Positively Impacting Their Finances

With all the stress and struggle just to make it, Rachel and her team did see positive ways that these families are helping themselves when it comes to their finances.

One example of a positive attitude in the book is a lady whose husband has a good bit of volatility in his work hours and pay. So she takes advantage of sales at the store to ensure that her family can eat and be taken care of on those weeks when maybe the paycheck is short of what they need.

While these families might not have a ton of cash saved in the bank, they do have goals for saving for the future. It may mean that there is extra meat in the freezer though, instead of money in a savings account.

Typical Financial Setbacks for the Average American Family

Certainly, things like overwhelming debt or bankruptcy bring a huge level of stress to anyone, but there are smaller financial areas that can cause stress that builds up over time and leaves a negative impact on our lives.

The main one that Rachel’s team saw was just the constant worry about having enough. Giving up a good but unstable job to take a job with steady hours but less pay can cause a real strain on a family. When the hours are there, but the pay is decreased, the problems don’t go away; they just change.

Setting Financial Goals

With all of the struggles that the average American family faces do they even set financial goals? And are they realistic goals? We tend to think that people that are struggling are just “bad with money”.

The families in the research project definitely knew what goals they should have, whether or not they had met them. They knew, for example, that they should have several thousand dollars set aside in an emergency fund. The fact that so many of these families just don’t have the cushion to save more, along with an unstable economy, was the common factor in those kinds of goals not being met.

Tools Used to Manage Money

Things like insurance, savings accounts, or even family members can be helpful tools when it comes to managing your money. But the families in the project didn’t always have the tools they needed, and even if they did they weren’t always able to use those tools to their fullest extent.

For example, a savings account can’t save money that you don’t put in it. And if there is easy access to the money, the families will use it whether it’s an emergency or not. Some of the families go to extremes to not be able to access their savings, but that’s not the norm.

The Biggest Surprises from the Research

If you keep up with what “people” are saying, then some folks have got it really good while some folks are really struggling. And while that will always be true to some extent, and while a lot of that is based on geographical location, Rachel’s team found that financial struggles were very much a “common pain.”

Another thing that surprised them was the interconnectedness of people. After working in finance for many years, Rachel had a picture of people who worked with their financial advisors and didn’t talk about money to others.

But what they found was that people have relationships with others that also involve money. Sometimes that looks like lending money to a family member or friend; sometimes it was borrowing from a friend or family member. Some people were challenging each other to save or even saving together. Only 5% of the sample families had absolutely no engagement with others around money throughout the entire year of the project.

Real Life, Real Family, Real Finances

Becky and Jeremy are a family that is portrayed in the book. Jeremy is a mechanic and has a fluctuating income of around $40,000 a year. For where they live, this is enough to support a family, but because of the volatility of his income, they spent 6 months of the year living below the poverty line.

Several of the families in the study spent a month or more below the poverty line, and this should help us all to understand why American families feel so insecure about money. We don’t think that a middle-class income means being consumed with worry about buying groceries or paying bills. Some of the stress these families feel comes from having to use government assistance, and they feel guilt over using systems that are “for the poor.”

Practical Action Steps

“Writing these steps felt like trying to boil the ocean…there’s just so many things that could be done…” ~Rachel Schneider

Products like Digit could be a huge help for some of these families and families like them. Automating their savings could be a huge game changer for them. The ability to save varying amounts within a volatile income is one of the benefits of a system like Digit.

Placing risk on the right shoulders is another practical step that Rachel and her team are still discussing. For example, is Jeremy’s volatile income really the problem? As a mechanic, he makes more money when there are more trucks to work on…but is that his risk or the risk of the business owner? And who should bear that risk?

Time Stamps

How American Families Are Mastering Their Money in a World of Uncertainty

  • 2:48 Why Rachel wrote The Financial Diaries
  • 4:00 A snapshot of the people in the book
  • 5:00 What exactly is the poverty line?
  • 5:30 How many families are represented in the research?
  • 6:10 Tracking every single dollar in and out
  • 7:11 The Results of the project: Americans are struggling
  • 8:28 How stagnant wages affect the American family
  • 9:20 Why do people feel so squeezed?
  • 10:30 What are these families doing that has a positive impact on their finances?
  • 11:55 Out of the box ways to save for the future
  • 12:30 How self-awareness helps you meet your goals
  • 13:14 What sets the average American family back financially?
  • 14:50 Is the average American family good at setting financial goals?
  • 15:35 Are they meeting those goals?
  • 16:35 The tools that the families use to manage their money
  • 19:55 What about investing?
  • 21:00 Financial struggles are a common pain
  • 22:05 The interconnectedness of people
  • 24:05 A real life picture of a typical family- meet Becky and Jeremy
  • 26:30 Personal responsibility vs. shared responsibility
  • 27:30 How Digit could help the families in the study
  • 29:15 Putting risk on the right shoulders

Show Sponsor

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This show is part of the FinCon Podcast Network and was produced by Steve Stewart.

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