As many as half of U.S. households experience what researchers call "income volatility," meaning their income can go up or down by 25% or more from one month to the next — a statistic we reported on in "When there's too much month at the end of the money."

How to help people cope with these fluctuations has become a hot topic, especially among those who work in the financial inclusion sector. Several speakers talked about this challenge at the annual Emerge conference that the Center for Financial Services Innovation hosted in Austin, Texas, earlier this summer.

Elizabeth Rhodes of Y Combinator Research is even testing a possible solution: "universal basic income."

It would work something like this: Every citizen with income below a certain level in a given month would get a check that is at least enough to cover basic needs like food and shelter. When those people start to earn enough income, they would repay the money in the form of taxes.

Elizabeth Rhodes, research director for basic income at Y Combinator Research.
Don't just sit there
"Instead of tinkering at the margins or participating in a debate based solely on conjecture, we need to start experimenting,” says Elizabeth Rhodes, research director for basic income at Y Combinator Research.

Lose your job? Too ill to work? Need time off to care for aging parents? Universal basic income has you covered.

"Because it is universal, we wouldn't have to apply for it or experience the stigma associated with traditional welfare. It's a kind of social security for all," said Rhodes, who is a research director at YCR.

Sound radical? Well, there are those who say that existing social programs could use some radical thinking. Rhodes is one of them.

"So many policies and social programs are reactive, not addressing a problem until many people's lives have been upended, and then acting as more of a Band-Aid than a sustainable response to the problem," she said. "We need to be proactive."

YCR is an extension of the startup accelerator Y Combinator, whose alumni include companies such as Airbnb, Dropbox and Reddit. The mission of the nonprofit research institution is to explore big ideas and spur innovation.

It is seeking grants and donations to fund its study on universal basic income, which Rhodes hopes to get underway within a year. She plans to recruit about 3,000 people across two states and randomly assign 1,000 of them to receive approximately $1,000 a month for three to five years.

"We want to know if and how this basic level of economic security helps people cope — and even thrive — in the midst of volatility and uncertainty," she said.

She expects the results to be surprising, even if some outcomes like consumption smoothing, reductions in stress and improvements in mental health occur just as supporters of universal basic income predict.

Rhodes is already running what she calls a "pre-pilot" with fewer than 10 participants to work out some of the kinks. The sample group includes a range of socioeconomic levels, but is skewed toward the lowest, she said.

What Rhodes hopes to document with the study is: How will people spend their time and money once they no longer have to make choices driven by basic needs like paying rent? Do health outcomes improve? Are people happier and more hopeful? Do they start to make more decisions based on long-term plans, like taking classes to learn a new skill? Do kids improve academically? Are there fewer financial emergencies in people's lives, making them more stable and resilient?

Though people for and against universal basic income tend to argue about macro-level questions — would it replace existing social programs or supplement them? — Rhodes is more interested in learning about the life changes that could result.

"On its face, it seems completely infeasible: How do we pay for it? Politicians will never support it, and so on," she said.

"We're sort of taking this as the first step to see how it affects individuals who need it and, if that seems promising, then we can think bigger picture of what it might look like as a policy."

The current debate about universal basic income relies heavily on conjecture, Rhodes said. "We have very little evidence for how basic income would actually work in the U.S. in the 21st century."

But now we will.

"The reality is the labor market is changing rapidly and job loss, unemployment, and wages that leave someone who works full time at or below the poverty line will likely continue to rise unless we do something about it," she said. "Instead of tinkering at the margins or participating in a debate based solely on conjecture, we need to start experimenting."

Bonnie McGeer

Bonnie McGeer is the executive editor of American Banker. She oversees its monthly magazine and chairs the Most Powerful Women in Banking and Finance program.

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