Citing ‘Tale of Two Recessions,’ LendingClub Points to Need for Automated Savings 

Data tells a story — and depending on where you look, different data sets tell different stories.

In some cases, the stories we’re told can be wildly divergent. Two recent reports from the Census Bureau illustrate that point: One report says that poverty has gotten worse in the U.S., and another says the poverty rate has actually improved through the pandemic.

But no matter how you slice and dice the numbers, there’s a general theme here that cuts across both reports, LendingClub Financial Health Officer Anuj Nayar told Karen Webster in a recent interview: “It’s been a tale of two recessions. There’s no doubt we’ve seen some areas [of the population and businesses] rocket back,” as a short recession officially ended months ago. But there is not yet a standard reading on just how individuals and families are doing in the current economic environment.

The “traditional” annual poverty report from the U.S. Census Bureau is outdated, said Nayar, with methodologies and definitions stretching back to the 1960s. The latest data from the Bureau says that inflation-adjusted household income fell by almost 3% last year. The poverty rate gained 1% to a bit more than 11%.

The latest data points represent reversals of positive trends that had been in place for several years and reflect the impact of the pandemic, which at its nadir shuttered businesses up and down Main Street and beyond, and threw tens of millions of people out of work. The recession officially ended in April 2020, but the impact lingers at the individual and household level.

The Supplemental Poverty Measure, which is also tracked and published by the Census Bureau, extends that aforementioned poverty measure by including government assistance programs. Under that measure, poverty declined largely on the heels of stimulus programs and government aid.

The supplemental poverty rate slipped 2.6% in 2020 as compared to the previous year. Relief payments helped keep more than 11 million people out of poverty. About five million people found themselves below the poverty line due to medical expenses, and the total number of people living in poverty in the U.S. reached more than 37 million, per the supplemental measure.

It’s a difference of computation, at least in part. And to get a sense of just how numbers and mathematical inputs can tell wildly different tales, even on a fictional Capitol Hill, here’s a link to a West Wing clip. It’s true that the original parameters of the poverty calculations were calculated decades ago, in part, by statistician Mollie Orshansky.

The General Theme

Adding in the benefits payments, per the supplemental report, maintained Nayar, helps present a more accurate picture of reality. “But clearly, there are still many, many Americans who are still feeling the pain a year and a half into the pandemic,” he added.

Dig a bit deeper and look to alternative data sources such as PYMNTS’ own paycheck-to-paycheck studies, and the impact of the recession gets a bit more granular: As many as 54% of Americans live paycheck to paycheck, which indicates that they struggle to make ends meet, and as many as 39% of those earning more than $100,000 annually self-define as living paycheck to paycheck.

Read here: New Report: 53% of Upper-Income Americans Live Paycheck to Paycheck 

Against that backdrop, said Nayar, the official poverty reports exist as “just the tip of the iceberg to a much bigger problem” in the U.S. Incomes are going down, while expenses are going up. And once prices go up — for staples such as a loaf of bread (up $2, anecdotally, if you’ve gone to the store recently) and clothing and pretty much everything else — they don’t go down. Supply chains remain constrained, while healthcare costs are suddenly front and center. And as inflation drives prices up, purchasing power goes down, as wage growth is not keeping pace.

Amid the pinch of daily financial life, one-third of all consumers have less than $1,000 in savings in the bank. It is that cash cushion that can help ease the pressures of living paycheck to paycheck and can help absorb unforeseen expenses.

There can be a silver lining to the “cushion” problem, noted Nayar. FinTechs, including LendingClub, can step in and help people manage cash flow. The range of products and services includes early access to earnings, which helps match payday to expenses.

There are also ways of automating savings to build up defenses against exogenous shocks. Automated savings can make sure that life’s challenges “do not send you back into a debt spiral,” said Nayar. A continuum of user-friendly reports that give users a snapshot of their overall financial picture can make monitoring their financial wellness as easy as monitoring their own physical well-being.

As he told Webster, it’s time to look past the government data, and past stark definitions that only look at whether people are above or below the poverty line. The real-life struggles are more nuanced.

“We measure poverty annually, but the reality of living paycheck to paycheck is faced on a day-to-day basis,” he said, adding that “if [the pressure] isn’t taken seriously, it’s only going to increase over the next 15 to 20 years, and [will] become a major public policy and private sector issue.”