Kriston Capps is a staff writer for CityLab covering housing, architecture, and politics. He previously worked as a senior editor for Architect magazine.
Families with even a small amount of savings are more able to endure income disruptions without relying on public benefits.
The point seems like an obvious one: “The economic health of cities and communities depends on the financial health and stability of their residents.” No one would expect otherwise. What else could account for the economic health of a city but for the people living there?
That the wealth of families adds up to the wealth of cities isn’t in question. But how the financial health of families contributes to a city’s financial health in particular is harder to say. For a new report, researchers at the Urban Institute set out to answer a few fundamental questions about how the financial health of families translates to the financial health of cities in the U.S.
What the researchers discovered is a kind of lower bound: Families with even a small amount of savings are able to endure income disruptions without relying on public benefits. The savings cushion for a low-income family is a relatively small one, but more than one-third of families do not have this much money in savings for an emergency.
“We were surprised to find that families with as little as $250 to $750 in savings are less likely to be evicted, miss a house or utility payment, or receive public benefits,” Caroline Ratcliffe, senior fellow at the Urban Institute, tells CityLab.
The researchers examined three kinds of income disruption: involuntary job loss, illness or injury that limits a person’s ability to work, or a drop in income of 50 percent or more. When met with one of these income disruptions, families with even a small savings cushion ($250–$750) were significantly less likely to experience hardship than families without savings.
Hardship outcomes matter to cities. Eviction is a leading cause of homelessness, especially for families with children. Eviction also leads some families to seek out substandard living conditions. Residential instability limits opportunities for children and youths. Missed utility payments, another form of hardship, is a cost for municipalities. So are public benefits.
Families can avoid hardship during emergencies by saving money—again, that part seems obvious. But the savings component may be more important than income to a certain degree. In fact, savings are so critical to a family’s financial health that a low-income family with modest savings (under $5,000) is much more likely to endure an income disruption without experiencing hardship than a middle-income family living paycheck to paycheck.
As Neil Gabler writes in the May issue of The Atlantic, some 47 percent of families in the U.S. could not muster $400 in an emergency. That finding, from a 2013 report by the Federal Reserve Board, comports with the research at the Urban Institute. Using data from the U.S. Census Survey of Income and Program Participation, Ratcliffe and her colleagues show that almost one-quarter of families in the U.S. (23.8 percent) have no savings at all, while another 12.5 percent have savings of under $250.
More than half of all families have just a little bit of money squared away (under $2,000). In a neat demonstration of inequality in the U.S., the percentage of families with nothing saved up is the same as the percentage of families with savings of $20,000 or more.
Financial insecurity is a problem for families that can take the form of food insecurity, poor health outcomes, and homelessness. The Urban Institute’s research shows that a family’s financial insecurity is also a city’s problem. When families without saving suffer income disruptions (which are common), they may turn to public benefits. Or they may turn to more expensive forms of support. Or they may suffer. All of these outcomes at the family level detract from a city’s overall financial health.
“We need to be thinking that the benefit of having a savings cushion can go beyond meeting that initial need,” Ratcliffe says. “Having a savings cushion can eliminate the need for payday loans or other high-cost loans. These high-cost loans can get people into a cycle of debt.”
Local Interventions for Financial Empowerment Through Utility Payments (LIFT-UP), a pilot program by the National League of Cities, helps families with utility debts repay them while also introducing them to financial coaching. The program is currently being screened in Houston, Louisville, Newark, Savannah, and St. Petersburg. So far, the results are promising. In Savannah, more than 60 percent of participants in the pilot successfully paid down their utility debts, according to the Urban Institute.
The rising tide lifts all boats. When it comes to family financial health and city financial health, rescuing the boats may also bring the tide up with them.