Posts Tagged "low incomes and poverty"

Financial Fallout from ‘Gray Divorce’

In the 1960s and 1970s, the baby boom generation had a reputation for breaking down societal norms for behavior – and they’re at it again.

Chart: divorce ratesBetween 1990 and 2010, the rate of individuals over age 50 who become newly divorced in a year doubled to more than 10 people affected per 1,000 married people, according to Susan Brown, a sociologist at Bowling Green State University. Studies by Brown and others are emerging that show this important trend of “gray divorce” is having negative consequences for baby boomers’ financial security in old age.

“Individuals who go through gray divorce are considerably economically disadvantaged, and they are a growing demographic group,” Brown said. She estimates nearly 650,000 people over 50 were involved in divorces in 2010 alone. …Learn More

Polishing the EITC on its 40th Birthday

The Earned Income Tax Credit is a critical lifeline that lifts some 9 million low-income Americans out of poverty – half of them children.

But the federal tax refund program isn’t perfect. The large refunds come just once a year, in the spring tax filing season. A cash crunch is a year-round problem for working families with low or erratic incomes who can’t always pay their bills.

A new study by the Center for Economic Progress identified additional financial benefits from the Earned Income Tax Credit (EITC) when participants in a Chicago pilot project received smaller, regular EITC payments throughout the year.

For example, workers who received the quarterly payments – in May, August, October, and December – were much less likely to have high-rate payday loans than people whose EITCs came all at once, helping program participants to avoid expensive late fees on payday loans. There was also evidence that workers in the EITC pilot accumulated less total debt, though the sample size was small.

Shirley Floyd

The participants surveyed overwhelmingly said they preferred the periodic payments, and they reported lower stress levels than the control group. Shirley Floyd explained why in a previous blog post:

When Floyd receives a one-time tax refund in February, “the entire thing is gone” by March. But each payment she received in the pilot program, she said, allowed her “to do what you need to do.”

The program was run by the Center for Economic Progress, which provides financial services to low-income families. David Marzahl, president, was disappointed that about one-third dropped out of the research pilot, leaving only 217 participants who saw it through to the end. Nevertheless, he feels the pilot confirmed the concept’s potential to help low-income working persons with children and would like to see it expanded into a nationwide program, administered by the IRS. …Learn More

Tax Refunds Advanced to Low Earners

Shirley Floyd

Things are looking up for Shirley Floyd of Chicago.

Her daughter just earned a college scholarship, and Floyd has landed a better job. The new job requires the 37-year-old to stand on a concrete floor, sometimes 10 to 12 hours a day, inserting automobile gaskets into cardboard sleeves for shipping. But her earnings, including overtime, are much larger than her $216 biweekly paychecks in 2014, when she was a part-time home health aide.

When Floyd was unable to keep her head above water last year, she received a financial lifeline from a program run by the Center for Economic Progress in Chicago. Under the pilot program, which was supported and funded by the Chicago mayor’s office and housing authority, 343 low-income recipients of the federal Earned Income Tax Credit (EITC) signed up for quarterly advances on their current year’s EITC payments, which they otherwise would have had to wait to receive the following year at tax time.

“It was an awesome program,” Floyd said about the advances, which always seemed to arrive at just the right time. “That pressure is relieved – for a little while. You’re able to do what you need to do.” She also believes quarterly payments are better than a large, one-time tax refund in February, because “the entire thing is gone” by March.

Under the Periodic Payment Pilot Program, low-wage workers with at least one child could get up to 50 percent of their estimated future EITC refunds as quarterly advances, up to a maximum of $2,000 per year. Floyd used her advances of nearly $400 per quarter to pay utility bills, rent, or her daughter’s tuition at a Catholic high school. …Learn More

College Funds Depend on Family Income

How much teenagers must borrow for college often depends on whether their parents can help foot the bill – and how much they can afford.

Fresh data from a survey by Sallie Mae, the private college lender, shed light on how low-, middle- and high-income families find the money to pay for a college education. The data break down how much of students’ total costs – tuition, plus books, room and board, fees, living expenses, and transportation – come from earnings, savings, borrowing, grants or other sources.

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Here’s what stands out in the data, which are displayed in this chart:

  • In low-income families, the students themselves take responsibility for saving, earning or borrowing money to cover 32 percent of their costs, and middle-income students pay 29 percent. Students from high-income families cover just 19 percent of their costs; they tend to pay more for their education, so their total dollar costs are higher, which somewhat narrows the dollar difference between what students in each income group pay. …

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Americans Cope with Income Swings

A full-time job that delivers a steady paycheck, week in and week out, is a luxury for many working people.

Low- and middle-income adults are instead often whipsawed by wild swings in their incomes, finds a U.S. Financial Diaries project, based on detailed biweekly or monthly financial interviews with 235 urban and rural U.S. households nationwide. During the course of the year these interviews were conducted, the average household experienced four spikes or dips, defined as a change of at least 25 percent in their incomes.

The Bloomberg video above explains that even when workers’ annual incomes are sufficient to cover annual expenses, these month-to-month fluctuations complicate how – or whether – they can save for their future.

The income swings have many causes primarily stemming from the labor market, including unpredictable work schedules, unsteady part-time or self-employment, and a patchwork of multiple jobs, as well as a reliance on intermittent payments such as tax refunds.  More than half of the adults interviewed – retail and construction workers, waitresses, check cashers, hotel workers, taxi drivers – held down more than two jobs. …Learn More

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Curbing Debt: It’s Not What You Know

The biggest financial hurdle facing workers with low incomes is just that: inadequate income to meet their daily needs.

Low-income households are further tripped up by their greater tendency to borrow at high interest rates – rates they are the least able to afford in the first place.

Some academic research blames this on poor financial literacy.  But a new study out of Northern Ireland examines two separate aspects of financial literacy and finds the problem is not a lack of knowledge but rather an absence of money management skills.

Among “financially vulnerable” people, the study concluded, “money management skills are important determinants of consumer debt behavior” and “numeracy has almost no role to play.”

The study involved researchers conducting one-hour, face-to-face interviews in low-income neighborhoods in Belfast. They interviewed 499 people whose average gross earnings were the equivalent of $567 per week or less. …Learn More

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Income and Disparate Death Rates

The differences in Americans’ longevity, depending on one’s income level, are striking.

The annual death rates for 50- to 74-year-old men and women with the lowest earnings are more than double what they are for high earners.

This gap in life spans, which is well-documented in the research literature, has been growing with each new generation.  A recent study digs deeper to uncover specific ailments, such as heart disease, that may be driving the growing disparity.

Brookings Institution researchers Barry Bosworth, Gary Burtless, and Kan Zhang used data from a nationally representative sample of almost 32,000 older Americans that included the causes of individual deaths occurring between 1992 and 2010.  The survey contains detailed information about the cause and timing of the deaths, as well as interviews with family of the survey participants after they die.

The researchers compared the mortality rates linked to specific diseases for high- and low income people, defined as those whose earnings in their prime working years fell either above or below the median, or middle, income. They found that the risk of dying from the nation’s leading causes of death – cancer and heart conditions – has declined significantly for high-income Americans, both men and women. No such improvements were evident, however, for low-income men and women. …Learn More