The Financial and Psychological Costs of Income Volatility

By: Lisa A. Gennetian and Bradley Hardy

The Issue:

Much attention is devoted to economic uncertainty at the national or even global level which can impact large swaths of the population directly. Issues such as unforeseen price spikes can impose very real constraints on people’s spending and lead to difficult choices; an unexpected financial shock can spread and cost jobs. Yet many families experience chronic, high levels of additional uncertainty in their daily lives due to the variability and unpredictability of the income they depend on. Income volatility can stem from unexpected layoffs, gig jobs with irregular and variable hours, compensation that depends on tipping, as well as uncertainty in the receipt of government assistance and benefits, among other factors. When it is not predictable or voluntary, this instability can impose large costs on workers and families, putting demands on people that can subsequently undermine their economic and general well-being. The instability can impact their mental health and sleep, as well as the cognitive attention they have available to put towards work, self-care, providing care for children, or to positively engage in parenting.