Gary Cameron / Reuters

Normal economic theory would predict that more income allows for more spending. But little about the most recent economic recovery has been very normal: A recent study conducted by the JP Morgan Institute suggests that even six years after the recession’s end, many families still feel so insecure about their finances that even when they make more money, they generally aren’t spending more.

Why? Volatilityespecially for month-to-month earnings and consumptioncontinues to plague American families. Nearly half of of the households studied had income swings of more than 30 percent on a month-to-month basis, and more than half had spending that shifted by 30 percent or more in an attempt to balance budgets—with earners at opposite ends of the economic ladder seeing the most significant monthly variations. Volatility means insecurity for low-income earners, which in turn depresses spending.

While income volatility was apparent for Americans in all income brackets, it has more dire consequences for those who earn less. Month-to-month ups and downs in earnings can leave a family unable to make rent or utilities payments, and in some cases it also means that a household constantly vacillates in eligibility for important aid programs that provide funds or access to things like child care or food assistance.

The uncertainty of work plays a major role in this decoupling of income and consumption. Negative financial events that impact a family’s income such as shift cuts or seasonal unemployment are common, regular occurrences. Positive events such as a bonus or the arrival of a tax refund are, by contrast, rare.

That may be why a significant portion of households, approximately 39 percent, are hesitant to increase spending—even when they see their income rise, the study found. When these households see an uptick in income, their change in consumption levels winds up at least 10 percentage points lower than their income gains.

While limited consumption might seem like a reason for celebration (more savings!), the study finds that that’s not really true either. Most households—regardless of income—didn’t have what would be considered a sufficient amount of funds to handle a significant economic downturn, such as a large medical bill that arises during a period of unemployment. The study found that for households in the lowest socioeconomic group the amount needed to withstand such an event would be about $1,600. For groups in the middle of the distribution it would be about $4,800. On average, households in each of these groups fell short of those financial goals by $1,000 or more. Only the highest quintile of earners came close to having what amounted to an appropriate amount of money for such a situation.

That may mean that consumption volatility and the large portion of respondents who hesitate to spend—even when income climbs—is more about financial strain than financial prudence. And in an economy where spending and consumption make up more more than two-thirds of the GDP, financial insecurity is a problem for everyone.

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