We consider the U.S. Financial Diaries study to be one of the most important economic research projects of the last decade. The reason is this study covered several very important, growing trends:
Income instability, volatility and uncertainty are causing problems for a wide range of Americans
- People turn to 2nd jobs and side gigs to help moderate the impacts of these problems
Conducted in 2012 and 2013, the study tracked the finanical lives 235 low- and middle-income households.
This was no easy feat.
The 12 person research team visited each household on a weekly basis and attempted to track every dollar earned, spent, saved, borrowed, loaned out or given away. They also kept track of life events to help explain the undulating cash flows that characterized almost every household they studied.
That amount of effort, by the way, is why diary projects are rarely done. They are very expensive and very hard to do.
The research team recently released a book based on the study: The Financial Diaries - How American Families Cope in a World of Uncertainty. It's on our required reading list.
NYU's The Plight of the Sometimes Poor provides an excellent book review. Key quote:
The Diaries households were diverse, representing different races, ethnicities, immigration statuses, and jobs ranging from street vendor to tax preparer. None of the families were the richest or poorest in their communities, and while a quarter of them fell beneath local poverty line, others earned up to twice that much. Crucially, a close look at their daily transactions revealed that their annual income—the traditional measure for how well off someone is—didn’t tell their whole financial story. As the authors write, “The Diaries make salient the critical distinction between not having money at the right time versus never having the money, or in more academic terms, illiquidity versus insolvency.”
Surprisingly, this illiquidity was a problem even for families who would by other measures be considered middle class.
One of the ways these families try to deal with income volatility is side gigs.
As the study chart from one of the original Financial Diaries research paper shows, about 37% of households studied had an adult with multiple jobs.
After reading the Financial Diaries study results in 2014, we started working on trying to understand what role, if any, work in the on-demand economy played to help ease income volatility and illiquidity.
We found that many of those working in the on-demand economy are doing so to help them weather a financial hardship or get them through a period of time when their income had dropped.
Our findings are summarized in The Aspen Institute's New Findings Reveal the On-Demand Economy Plays Key Role in Improving People’s Financial Stability.
The on-demand economy is often attacked for creating "precarious jobs" that lack benefits and don't provide financial security. This is certainly true in many cases.
But the on-demand economy also provides access to highly flexible, low friction, income earning opportunities for those in need of supplemental income. As the Financial Diaries study showed, there are a lot of Americans with that need.
See the Intuit On-Demand Workforce study report for more on this topic.
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