Never sure how much money you'll be making next week? In 2014, the Federal Reserve found that about 1/3 of households experience income volatility. People who depend on tips or shift work for their income or people who work freelance might not be able to predict how much money will be coming in, which makes planning, financial or otherwise, very difficult.
The Problem: Income Volatility
The Brookings Institute claims that income volatility is 30% worse now than it was in the 1970s.
A New York Times article calls income volatility America's "hidden inequality," because it is hardest, of course, on the poor, "who don't just earn less than the better-off but also earn their lower incomes more choppily, the money coming in irregular bursts, surging in some weeks, vanishing in others, always making a mockery of plans."
Many people living under the poverty line earn more each year than they spend, but on a given day, they may not have enough cash to pay their bills. As a result, they may have to resort to predatory Payday loans, pawnshops, credit card debt, or overdraft fees, which makes them poorer because they charge high interest and fees.
The main cause of income volatility is irregular work hours. According to the New York Times, "employers increasingly use cutting-edge scheduling tools like Kronos to calculate the profit-maximizing head count for every hour and adjust schedules accordingly, week to week or even day to day, sometimes with scarcely any notice." Employees like Staples order their employees not to exceed a certain number of hours a week of work so that Staples doesn't have to give them full-time work status and thus benefits. Many hourly jobs don't have paid sick leave, which means that an illness can lead to major financial problems.
A Solution: There's an App for That
An Oakland-based startup, Even, wants to help solve the problems associated with income volatility. According to the New York Times, it is "staffed by big brains from Facebook, Google and Instagram and is funded by Silicon Valley A-listers like Khosla Ventures."
It might be a tall order to fix large-scale social problems such as wage stagnation, growing individual debt, lack of sick leave and corporate policies that don't value the labor of their workers.
Even is making an app that "smoothes" irregular income into "a steady flow of a simulated salary," according to the New York Times. When users earn more, Even banks the surplus in a Even-managed savings account. Then when the user has a bad week and doesn't make as much money, they still get their regular Even salary, which is paid out of their saved surplus or interest-free credit from Even.
Anand Giridharadas, who wrote about Even for the New York Times, writes, "Even's purpose is hardly to change the distribution of wealth in society. It is simply to redistribute one person's own limited wealth across time."
The app won't help people who don't have bank accounts, which is about 25 million Americans. It also won't be able to help people who are just to broke to get by at all.
Even claims that will not invest people's deposits to earn additional money for the company and will instead just charge users a $3 weekly fee for use. Even is seeking partnerships with large employers who could offer the app to part-time employees as "a subsidized benefit, akin to health insurance or financial wellness programs," says Even co-founder Jon Schlossberg.
Even will be available to a few thousand people by September and it will be launched in January 2016.