U.S. Financial Diaries


What do Turkey, Chile, Mexico, and the United States have in common?

Among the world’s developed countries, they top the list of those with the greatest income inequality.

Perhaps that doesn’t come as a surprise: We’ve all heard that “the rich are getting richer, and the poor are getting poorer” in America.

But these headlines provide a simple snapshot of poverty in the United States, painting the American experience in broad strokes without digging deeper. Professor of Public Policy and Economics and Executive Director of the Financial Access Initiative Jonathan Morduch sought to remedy that by examining American poverty through a more human lens.

Professor Morduch and his colleagues deployed field researchers to low-to-moderate-income communities in California, Mississippi, Ohio, Kentucky, and New York, delving into the day-to-day financial lives of about 250 households.

Their goal? To compile a series of “financial diaries” of Americans living in poverty in the United States to better understand the challenges households face and decisions they make.

Take the Garza family. Ricardo Garza lives in an agricultural community in Northern California, where he works construction. It’s steady work, earning him $400 a week, but not enough to make ends meet. So Ricardo has a side job, helping out with his friend’s home remodeling business. Ricardo’s wife, Daniela, sells jewelry and clothing online and provides childcare services for some extra income.

If you look at the Garza’s average monthly income ($2,800), you’d think they were getting by. But the average disguises the tremendous volatility in the family’s income. Some months, when business is good, the Garza’s bring in as much as $5,000. Other months, their income dips as low as $1,600.

This fluctuation creates tremendous stress and tension in the Garza’s lives, and they are ill-equipped to hold onto the gains in the good months to prepare for the bad months. Instead, they turn to pawn shops, take out loans and incur mounting credit card debt.

The Garza family’s story is far from unique—Professor Morduch and his team found that this instability in income across all the families in their study. And these findings, according to Professor Morduch, shed light on what he calls a hidden inequality in the U.S. labor market.

By looking beyond the headlines, these findings illuminate pressing challenges facing low income Americans—and how policymakers can help. Professor Morduch says financial literacy training, teamed with economic incentives to save, can give American households the tools they need to weather these financial ups and downs, and ultimately chart a path to long-term financial independence.

Watch Professor Morduch's WAGTalk: