Documenting Divides

Philadelphia, Mississippi has come a long way since 1964, when members of the Ku Klux Klan murdered three idealistic young men for investigating the burning of a black church, a tragedy that fueled pressure to pass the Civil Rights Act of 1964. Visit Philadelphia today, as members of the U.S. Financial Diaries team recently did, and the topic of conversation is just as likely to fall to economic struggles as it is to lingering racial tensions.  

Eastern Mississippi is no economic backwater. Companies are investing, and banks do steady business. But while racial divides were once the clearest obstacles, parents today worry about economic opportunities and pitfalls. Check cashers, pawn shops, and car title lenders operate a few blocks from bank branches. Citizens work hard, but jobs for unskilled workers often pay poorly and offer limited benefits. Even as racial divides ebb, economic divides run deep.

How does that translate into the financial lives and decisions of individuals? 

To better understand the financial conditions of low-income families, the U.S. Financial Diaries team will spend 16 months in Mississippi, as well as in communities in California, Ohio, and New York. Starting in late 2011, we will interview 300 families twice a month to better unpack comments like one we heard on our recent trip to Mississippi: that parents teach their kids “how to be poor,” focusing on how to stretch a dollar, but not stressing how to save and prepare for old age. Ultimately, we hope to understand how families make ends meet, where they face challenges, how they plan for the future—and what governments, banks, and non-profits can learn from the choices of low-income families.

On Monday, May 23, 2011, members of the U.S. Financial Diaries research team from New York University’s Financial Access Initiative, Bankable Frontier Associates, and the Center for Financial Services Innovation will talk about the research and how it can frame questions that have been hard to tackle with other methods at the Microfinance USA Conference. The Financial Diaries methodology logs each cash flow into or out of a household, with a special focus on the financial instruments that facilitate those flows. The approach combines strengths of large, quantitative surveys and highly-focused ethnographic studies. We generate deep data across a limited number of households, as well as a line of sight to the social and institutional dynamics that shape financial decisions.

We’ve already seen the power of this approach overseas. Financial Diaries research in Bangladesh, India, and South Africa led to the 2009 book Portfolios of the Poor: How the World's Poor Live on $2 a Day. The international results were both illuminating and humbling. The Financial Diaries method showed a wide array of choices and activities that had previously been hard for researchers to see. Families thought to be living hand-to-mouth were actually saving throughout the year, often in informal arrangements with neighbors. In Bangladesh, slum-dwellers were saving and borrowing the equivalent of about two-thirds of annual household income over the course of a year.

What dynamics will our research in the U.S. uncover? We are excited to find out. Read any account of low-income Americans, from Kathryn Edin and Laura Lein’s Making Ends Meet to Katherine Newman’s Chutes and Ladders, and the chaos of living life with a slim financial margin is painfully clear. Considering how notoriously difficult it is to accurately capture low-income Americans’ income patterns (let alone their spending habits), our research will add an important layer to this conversation. Back in 1964, three idealistic young men knew that understanding starts with documenting the conditions of communities that are often hard for outsiders to see. To understand what America’s economic divides mean in 2011, we aim to start by simply documenting what it means to get by on very little.  

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Jonathan Morduch is a professor of public policy and economics at New York University’s Wagner School of Public Service, co-author of Portfolios of the Poor: How the World's Poor Live on $2 a Day, and lead investigator of the U.S. Financial Diaries. Barbara Kiviat is a David Bohnett Fellow at New York University’s Wagner Graduate School of Public Service and a member of the U.S. Financial Diaries research team.