Get a job. Calculate a monthly budget and stick to it. Be careful with credit cards. Make regular contributions to a retirement fund. And whenever you can, put away a little extra to save for emergencies.

Follow these guidelines and, barring a sudden, dramatic loss of income (like a layoff), or an enormous, unanticipated expense (such as a health crisis), there should always be enough.

Or so we’re taught. So much traditional advice about achieving the American Dream—years of steady work rewarded with enough savings for children’s college tuition and a comfortable retirement—emphasizes discipline and personal responsibility. And when we think about poverty, we tend to picture the chronically unemployed inhabitants of crumbling urban centers or isolated rural communities. But what about folks with jobs and homes in stable neighborhoods, who work hard and try to save but never seem to have enough cash when they need it?

These workers, who make up a growing percentage of the American population, are the focus of The Financial Diaries: How American Families Cope in a World of Uncertainty, a new book by Jonathan Morduch, professor of public policy and economics at the Wagner School, and Rachel Schneider, a senior vice president at the Center for Financial Services Innovation. The researchers followed 235 families for a year, keeping track of everything they earned, spent, borrowed, saved, and shared over that period—a technique Morduch and colleagues had used in a previous project focusing on people living on two dollars a day in the slums of Delhi and Dhaka and townships outside Johannesburg.

“In economics what we often do is use data to test a specific hypothesis,” explains Morduch (pictured below). “But with this study, our approach was inductive. We really wanted to make sense of people’s choices—to understand households on their own terms—rather than beginning with the idea of testing a theory. That was the key to seeing all kinds of things we probably wouldn’t have seen if we’d narrowed the scope from the beginning.” 

photo collage: book: the financial diaries (left) and headshot of Jonathan Morduch (Right)

Wagner hosts a discussion with the authors on May 8.

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. While the swings between their monthly highs and lows were smaller, by percentage, than those experienced by poorer families, Morduch and Schneider found observed that middle-class households nonetheless spent about a third of the year with earnings far from their monthly average. And a larger study by the JPMorgan Chase Institute found that there was no meaningful difference in income volatility for people with an annual income of $23,000 or $100,000.

How can this be? Morduch and Schneider point to a variety of factors, including what they call the Great Job Shift—a decline, beginning in the 1970s, of available jobs that pay a decent predictable wage. “The best known case is manufacturing, which used to be a fairly big source of jobs in the U.S. but has shrunk radically,” Morduch explains. “And the jobs that have replaced that are in service and retail, which tend to be less secure and much less likely to be unionized.” Increasingly, companies use software to optimize scheduling so that employees’ hours are scaled back during slow periods—therefore shifting risk of lost income onto workers. Those who work on tips and commissions are subject to seasonal and other types of industry-specific fluctuations, and the “gig economy” has done little to smooth income volatility for the workers—including those with lower levels of educational attainment—who are most vulnerable to it.

To illustrate how destabilizing these spikes and dips in incomes can be for families, Morduch and Schneider relate the story of a truck mechanic from the Diaries project who ultimately chose to trade the uncertainty of working evening shifts on commission for the stability of 40 guaranteed hours per week—and what amounted to lower annual income.

If that seems like a questionable trade, imagine trying to take care of monthly expenses without a steady paycheck that would allow for any automated bill payments. “It creates stress,” Morduch explains, “to constantly think, ‘should I pay for this now or later?’ ‘If I get a tax refund, should it go to fix the roof or the car, or pay down debt?’ These complicated choices are wearying. It’s not just scarcity of money—it’s scarcity of attention and time, which means people aren’t able to make the best choices.” Morduch emphasizes that the households he studied were neither especially disciplined nor especially reckless with their money. “They were sort of average,” he says. “Few of us are perfectly disciplined and never make mistakes. But what we saw was that, for the families we got to know, being average wasn’t good enough. The penalties for making a mistake were so much higher than they would be, say, for me—because my NYU salary gives me a cushion financially.”

Fewer and fewer households can rely on that buffer, Morduch points out, given that incomes (adjusted for inflation) have stagnated, with the bottom 50 percent in income distribution having experienced no real growth between 1980 and 2015. And many of the Diaries families were among the 58 million people, or 18 percent of the U.S. population, whose household income put them above the federal poverty line but below a total that’s twice that line. That meant that spikes and dips in monthly income could have them experiencing real poverty some months, even if they didn’t consider themselves poor.

When they couldn’t make ends meet, some were able to apply for SNAP (food stamps), but most other government assistance programs were difficult—if not impossible—to access on a temporary basis. “We have anti-poverty policies that are largely focused on families who are consistently poor or poor for structural reasons, and it’s important to maintain and strengthen those safety nets,” Morduch says. “But at the same time we need to recognize that those policies are not well designed for another group of households who move in and out of poverty.” He envisions a “flexible bridge” that could help these families—the “sometimes poor”—avoid penalties and debt when their income temporarily dips.

Rethinking existing incentives and programs for savings could also help those the researchers found to be “savers without savings”—people who had little socked away in savings accounts or retirement funds but who dutifully set money aside for specific purposes. Whereas much of the financial services industry is designed around saving for major “life-cycle” events, such as college tuition, home down payments, and retirement, many of the Diaries households were not “saving in ways financial advisors might imagine,” Morduch and Schneider write. “They put aside money for expenses they anticipate in the next few months, not the distant future. Their bank accounts are flat not because of overspending but to balance the needs of now, soon, and later.”

Morduch was particularly struck by a New York City tech support worker who he called an “amazing budgeter”: Though his $11.25/hour salary only allowed him to put away about $25 per month for retirement, he quickly saved the $1,800 he needed for the security deposit on a new apartment—by giving some of each paycheck to his mother to hold. “His real goal wasn’t what most financial planners would focus on,” Morduch reflects, and “he didn’t put the money in a savings account. He needed to have a balance between structure and flexibility.” He called this unconventional solution the Bank of Mom. Another of the Diaries families deliberately had too much federal tax withheld from their paychecks so that they could depend upon a hefty refund in April—not something a financial planner would advise, but a creative alternative to the savings account that they closed because they kept getting hit with low-balance fees.

While we might imagine that having money “locked up”—say, in a retirement account that we cannot access without paying severe penalties—is the most reliable way to rack up savings, the researchers cite numerous studies showing that people actually save more, not less, when they have the freedom to withdraw funds for urgent needs. That’s why some financial planners are beginning to argue for the creation of retirement policies that include “sidecar” accounts—where a percentage of the money that would be saved for retirement is automatically set aside in an easily accessible emergency fund.

“There’s been a sense that people are taking too much out of their retirement funds early, and that to stop that, we ought to put up a higher wall,” Morduch says. “Our view is that that’s exactly wrong—you need to be flexible, or people aren’t going to put money in in the first place. It’s exciting to see the creative solutions that are beginning to come out of this.”

But savings is, of course, just one piece of the puzzle. In addition to low and uncertain incomes, families today are also contending with an array of increasing and unpredictable expenses—including, for example, the out-of-pocket payments that come with new high-deductible health insurance plans.

And there are other, more insidious barriers to achieving financial stability, too: One African-American casino worker Morduch spent time with in Mississippi told him that she felt disrespected and undermined every time she went into a bank. “She knew she didn’t get the help that she needed to manage her life,” he reflects. “That was sobering for me. This project helped me to see how widespread and pernicious is day-to-day discrimination.”

Indeed, if there’s one lesson Morduch took from the Diaries families’ struggles, it’s that—barring a sudden, miraculous boost in income for all—there will be no single, simple solution to the challenges they face.

“Lots of conversations around economic insecurity have to do with the fear of some big catastrophe,” Morduch says. “But when we saw people struggling in a given month, it wasn’t because of one big thing. It wasn’t usually just a health problem, or a housing issue—it was usually a pileup of different things happening at the same time. That suggested to us that solving this wasn’t going to be a sectoral thing—it’s going to take thinking much more broadly about how to help people with their finances.”  

Join NYU Wagner and the Citi Foundation for a special discussion with the Financial Diaries authors at the Puck building on May 8.