By Patricia Uceda, Fall 2014 Graduate Research Assistant
Income shocks are defined as a “large and unexpected drop in income in a 12-month period.” In today’s economy, no one is immune from suffering a setback such as this one. Companies nationwide have been announcing large cuts in labor forces. Most recently, Atlanta-based Turner Broadcasting announced that they were cutting their workforce by about 10%, or 1,475 jobs.
While an unexpected income-drop could happen to anyone, the FINRA Investor Education Foundation’s National Financial Capability Study showed that statistically they are happening in higher frequency to renters. 37% of renters experienced an income shock in the 12 months preceding the survey, compared with just 25% of homeowners. Combined with the fact that renters are less likely to have emergency funds in place, this is certainly a cause for concern. Renters are strongly encouraged to consider instituting an emergency fund so that they are better equipped to handle these income shocks.