James Militzer

A Year in the Life: The U.S. Financial Diaries Project’s groundbreaking exploration of the financial activities of low and moderate-income Americans

Editor’s note: This post is part of our Domestic Financial Innovation series – click here to read other posts in the series.

Think back on the past year in your financial life: the money you received from work, loans or gifts, the purchases large and small, the bank deposits and withdrawals. Now imagine keeping track of every one of those transactions – regardless of your income level, it would be a mind-boggling endeavor.

Yet that’s exactly what the U.S. Financial Diaries project has done – and not just for one person, but for hundreds. Undertaken by the Financial Access Initiative (FAI) at New York University, with the Center for Financial Services Innovation (CFSI) and Bankable Frontier Associates, the project was based on work that was done internationally for the book Portfolios of the Poor. It tracked the financial activity of 250 lower-income American households for a full year.

According to Tim Ogden, managing director of FAI, “We were visiting these families every two weeks to once a month, to record ever dollar in, and every dollar out. And of course you can’t capture absolutely everything, but over the course of a year we were able to gain these people’s trust, and you get to see a lot more and ask more questions and delve deeper. So we feel we’ve got some of the best information that’s ever been accumulated on how people in these income brackets are living their financial lives.”

The project studied both people living just below the poverty line, and people living just above it, Ogden says – “up to the lower edges of the middle class. And we do think this is a population that is poorly understood in general, but it is remarkably relevant even much farther up the income stream, based on what we see in general research about the number of American households that are living paycheck to paycheck or with a very small margin.”

As Ogden describes it, the findings challenge a common assumption about this population: that having less money equates to a simpler financial life – and less need for financial products. “In fact, we see the exact opposite: people lower on the income ladder conduct a lot more transactions, and they have to have a much more complex financial life to make ends meet,” he says. “But if you don’t use those same kinds of services and have to do the same sorts of things, all of the work that those people are doing to manage their financial lives may not be apparent. And so you don’t see the market opportunity because you don’t see what’s happening.”

To help bridge this gap in understanding, Ogden explains, the project has done a remarkably comprehensive assessment of how lower-income households use the income sources available to them – both formal and informal – to cover expenses. “What products are they using, what services are they using, what are the challenges they are encountering, how do they budget, what happens when something goes wrong and they have to come up with a lot of money, how do they manage finances within their family and household – and benefits and taxes, what are their aspirations, how does financial literacy and other financial knowledge affect the choices that they make – how does a year go?”

Data collection ended late last year, and researchers are now in the process of “a deep dive on analysis of that data – it’s a lot of data, as you can imagine,” he says. The project has started publishing some initial findings in the form of household profiles and issue briefs, and Ogden says a lot more will be released over the course of the coming months at the U.S. Financial Diaries website. But he emphasizes that the research has practical objectives that go beyond academia: “Certainly if this becomes just part of an academic project, we won’t have met our goals. The idea here is how do we actually make financial services work better for these households … you want to figure out where are the gaps and what do they need, so you can design products that fit those needs. And the reason we are partnered in this work with CFSI is because … the combination of FAI being an academic research center with CFSI being focused on the financial services industry and product development and product innovation allows us to bring both perspectives together and deliver something that’s a lot more compelling. … And we’re certainly hopeful that we’re waking people up to an understanding of the richness and the complexity of these people’s financial lives.”

But if there’s a market for these products and services, why haven’t financial institutions themselves done similar research on these customers? Odgen answers that and other questions in the video below. You can subscribe here to receive email updates on new findings from the U.S. Financial Diaries project as they’re released. We’ll be following up with more posts on the project and its implications for lower-income Americans and the financial institutions that serve them over the coming months.

financial inclusion, research