Making Ends Meet: Family Budgets in an Era of Insecurity

• In Event: 127 - Section on Inequality, Poverty and Mobility Roundtable Session (one-hour).
  In Paper Session: Table 09. Responding to Crisis

Abstract

American households are facing an era of economic insecurity. Yet despite growing interest in insecurity among stratification scholars, we are still unclear about what insecurity is and why it matters. This study argues that insecurity is the risk of economic loss, and that economic losses include both sudden economic shocks as well as gradual economic strains. While all economic losses are presumably negative, they vary in their form and magnitude. By examining how different types of economic losses affect household budgets, this study seeks to clarify how and when insecurity translates into loss of consumption potential. Using data from the Survey of Consumer Finances (SCF), I find that both economic shocks and economic strains undermine household consumption potential, albeit in different ways. Economic shocks, such as jobs loss or family disruption, have a straightforward relationship with family budgets, leading households to spend beyond their current income. Although economic strains such as income stagnation or high fixed costs likewise cause households to spend beyond current income, they also increase the likelihood of living paycheck to paycheck. Moreover, the strains of gradual income decline or high house payments are much more likely to cause households to seek debt as income replacement than shocks such as job loss. Taken together, these results indicate that economic insecurity is a complicated interaction between income, expenses and balance sheets and that future insecurity research should adopt a nuanced, multi-dimensional view of household finances.

Author

• Michael David Nau, The Ohio State University