New Economy Adaptation - Budgeting In an Era of Income Volatility

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Oct 06, 2020
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Activities, Behavioral Finance, Budgeting

Background. Let your history teachers know that they will need them to teach students how budgeting was taught in the past: with steady monthly income and expenses and saving for an emergency that’ll pop up here and there. In today’s world, that is no longer the reality for many Americans. Take every lesson that has anything to do with budgeting and look at it through the lens of what is the increasing reality of millions of Americans:

Pre-COVID statistic: more than one in three American households experience monthly income changes (volatility) greater than 25%. COVID has been particularly traumatic on low income households.

A few years ago while camping, just after finishing Financial Diaries (podcast with author here), I raced to the coffee shop to use their computer and email our Revisions Team at Ohio Department of Education that we needed to ensure that within the new standards we would account for the role income volatility plays in the lives of everyday people. From then on out, I revised every one of my lessons that would be affected by income volatility, which is not exclusive to budgeting; health care, retirement product selections, and even credit choices are affected.

Over time, employers have shifted more and more burden onto employees. It started with a shift away from pension plans and into 401ks, then health care, now companies are reducing permanent employees in favor of contractors, creating an all-new Gig Economy. Sadly, many of the same low-income households who experience the most pernicious income swings have been hurt the most during the COVID crisis, and are on the wrong end of the K-shaped recovery.

Graphics: Here are two charts that demonstrate this phenomenon:

Graphic via PEW Survey of American Family Finances: How Income Volatility Interacts With American Families’ Financial Security:

 

From WSJ (sub. required): Pre-Covid household debt hit record levels in early 2020 with middle class families seeing sharp increases in debt over the last decade: "Average nonhousing debt owed by families making $52,655 to $98,018 rose about 33% over the 12 years to $33,378."

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So how can you incorporate the reality of income volatility into classroom activities? 

Here's an adaptation of the popular Arcade game, Spent, with supplementary questions and teachers tips to help drive this reality of income volatility home with your students. 

 

 

About the Author

Brian Page

Making a difference in the lives of students through financial capability is Brian’s greatest passion. He comes to NGPF after fifteen years of public school teaching where he was the ‘11 Ohio Department of Education recipient of a Milken National Educator Award, the CEE Forbes Award winner, and a Money Magazine/CNN "Money Hero". He served on the working group for President Obama's Advisory Council on Financial Capability. He has private school experience as a Trustee for the Cincinnati Country Day School and was a past Ohio Jump$tart President. Brian holds a BBA and M.Ed. When Brian isn’t working alongside his NGPF teammates he is likely spending time with his wife, three children, and dog; hiking, or watching Ohio State football.