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One feature of having big banks in your economy is that they have access to some really big data, which, when parsed and studied, can hopefully give you some big insights into how your economy works. This is a hope behind the JPMorgan Chase Institute, which formally launches Wednesday with a report that sheds new light on how volatile personal finances are for many Americans.

The think tank's researchers started with data from 27 million Chase bank accounts, for a time period beginning in 2012 and ending in 2014. From that they narrowed their focus to 100,000 randomly selected people. The researchers tracked these customers' monthly balances in checking and savings accounts, credit cards, auto loans, mortgages and home equity loans; their transactions, down to day and time and where they shopped; credit bureau data; and general characteristics such as gender, age and Zip code. Add that up, and you get very clear pictures of what people -- individually (though not identified) and as a whole -- earn and spend, and how that changes over time.

Both income and spending change a lot, the researchers found, but they don't always change in the same direction: Just because people earn more money in a particular month doesn't mean they ramp up spending, and just because they earn less, they don't necessarily spend less.

From 2013 to 2014, the institute found, one in four people saw their incomes rise or drop by 30 percent or more. That's a big swing. About one in three people saw relatively little swing, plus or minus five percent. Everyone else was somewhere on the mild-to-major volatility scale. Consumption was even more volatile. Almost no one experienced month-to-month consumption swings of less than five percent: "Our data suggest that following a monthly budget that sets strict parameters on spending is extremely difficult," the report finds.

 

Liquid Assets Needed for U.S. Households in Each Income Quintile to Weather Income and Consumption Volatility For One Month

Middle-income earners need $4,800 in liquid assets in order to sustain concurrent fluctuations in and consumption for one month but typically only have $3,000

Quintile 1 ($0 - $23,300)

Needed: $800 Negative income fluctuation (5th percentile month in institute sample); $800 Positive income fluctuation (95th percentile month in institute sample); $1,600 Median value in transaction accounts (2013 Survey of Consumer Finance) 1

Actual: $600 Median value in transaction accounts (2013 Survey of Consumer Finance)1.

Quintile 2 ($23,301 - $40,500)

Needed: $1,400 Negative income fluctuation (5th percentile month in institute sample); $1,400 Positive income fluctuation (95th percentile month in institute sample); $2,800 Median value in transaction accounts (2013 Survey of Consumer Finance)1.

Actual $1,400 Median value in transaction accounts (2013 Survey of Consumer Finance)1.

Quintile 3 ($40,501 - $63,100)

Needed: $2,400 Negative income fluctuation (5th percentile month in institute sample); $2,400 Positive income fluctuation (95th percentile month in institute sample); $4,800 Median value in transaction accounts (2013 Survey of Consumer Finance)1.

Actual: $3,000 Median value in transaction accounts (2013 Survey of Consumer Finance)1.

Quintile 4 ($63,101 - $104,500)

Needed: $4,300 Negative income fluctuation (5th percentile month in institute sample); $3,900 Positive income fluctuation (95th percentile month in institute sample); $8,200 Median value in transaction accounts (2013 Survey of Consumer Finance)1.

Actual $6,800 Median value in transaction accounts (2013 Survey of Consumer Finance)1.

Quintile 52 ($104,501 - $154,600)

Needed: $7,400 Negative income fluctuation (5th percentile month in institute sample); $6,400 Positive income fluctuation (95th percentile month in institute sample)

$13,800 Median value in transaction accounts (2013 Survey of Consumer Finance)1.

Actual: $13,500 Median value in transaction accounts (2013 Survey of Consumer Finance)1*.

1 Transaction accounts include checking, savings, and money market deposit accounts, money market funds, and call or cash accounts at brokerages including medical or health savings accounts and 529 education accounts.

2 Quintile 5 reflects incomes for the 80-90th percentile

High- and low-income earners alike experience similar volatility, though institute officials say there's reason to think their sample underestimates volatility for the very poor. What's clear from the numbers, though, is that poorer people have less cushion to ride out a typical income drop. Those in the bottom two income quintiles had only half of what they needed to sustain their spending in the face of income fluctuations. Those at the top had nearly enough.

These findings are "the tip of the iceberg" of what the institute is capable of studying, said Diana Farrell, its president. Future projects include "financial behavior of individuals, insights on the small business sector and expert profiling of global trade and capital flows," officials say. Those are big topics -- but perhaps big data can help cut them to size.

The Washington post; A surprising number of people see their pay swing widely every month by Jim Tankersley, May 20, 2015, WASHINGTON POST NEWS MEDIA SERVICES. Reproduced with permission of WASHINGTON POST NEWS MEDIA SERVICES in the format Post on the Internet via Copyright Clearance Center.

The JPMorganChase Institute is a think tank dedicated to delivering data-rich analyses and expert insights for the public good. Its aim is to help decision makers–policymakers, businesses, and nonprofit leaders–appreciate the scale, granularity, diversity, and interconnectedness of the global economic system and use timely data and thoughtful analysis to make more informed decisions that advance prosperity for all. Drawing on JPMorganChase & Co.’s unique proprietary data, expertise, and market access, the Institute develops analyses and insights on the inner workings of the global economy, frames critical problems, and convenes stakeholders and leading thinkers. For more information visit: JPMorganChaseInstitute.com.