Walking a Tightrope: Using Financial Diaries to Investigate Day-to-Day Financial Decisions and the Social Safety Net of the Financially Excluded

• Published date: 01 May 2020
• DOI: 10.1177/0002716220921154
• Date: 01 May 2020

46 ANNALS, AAPSS, 689, May 2020

DOI: 10.1177/0002716220921154

Walking a

Tightrope:

Using Financial

Diaries to

Investigate

Day-to-Day

Financial

Decisions and

the Social

Safety Net of

the Financially

Excluded

By

OLGA BIOSCA,

NEIL MCHUGH,

FATMA IBRAHIM,

RACHEL BAKER,

TIM LAXTON,

and

CAM DONALDSON

921154ANN THE ANNALS OF THE AMERICAN ACADEMYUsing Financial Diaries to Investigate Financial Decisions

research-article2020

Financially vulnerable, low-income individuals are

more likely to experience financial exclusion as they are

unable to access financial services that meet their

needs. How do they cope with economic instability, and

what is the role of social networks in their coping strat-

egies? Using financial diaries, we explore the day-to-

day monetary transactions (n = 16,889) of forty-five

low-to-moderate income individuals with restricted

access to mainstream lending in Glasgow, UK, over a

six-month period. Our sample includes users of micro-

credit and financial advice, as well as nonusers of these

services. Findings reveal that informal lending to avoid

the pernicious effects of short-term illiquidity was per-

vasive among these individuals. However, taking infor-

mal loans often strains valuable social capital and keeps

people from building up a formal credit footprint. Our

findings suggest that financially vulnerable populations

would benefit from policies that focus on alternative

financial mechanisms to help stabilize income-insecure

individuals in the short-term.

Keywords: financial exclusion; poverty; social networks;

financial diaries; microcredit; RoSCAs;

informal finance

The ability to access and use financial ser-

vices that are appropriate to one’s needs is

essential for a healthy financial life (Morduch

and Siwicki 2017). Changes in the nature of

work and employment insecurity (Friedman

2014), among other factors, such as welfare poli-

cies, are contributing to high month-to-month

income volatility (Farrell and Greig 2016;

Olga Biosca is a reader in social business and microfi-

nance in the Yunus Centre for Social Business and

Health at Glasgow Caledonian University. She has

published on social and financial exclusion, micro-

credit, and income and health inequalities.

Neil McHugh is a reader in the Yunus Centre for Social

Business and Health, Glasgow Caledonian University.

His research focuses on various aspects of distributive

justice, including, for example, microcredit and eliciting

social values in the context of health resource allocation.

Correspondence: olga.biosca@gcu.ac.uk

USING FINANCIAL DIARIES TO INVESTIGATE FINANCIAL DECISIONS 47

Hannagan and Morduch 2016; Hills, McKnight, and Smithies 2006). Those for

whom incomes are low particularly struggle to manage increasing short-term

income fluctuations; restricted access to high-quality and affordable financial

services frequently combine with a lack of assets and savings that limit their abil-

ity to stabilize consumption over time (Morduch and Schneider 2017; Tomlinson

2018), therefore increasing financial insecurity and vulnerability. One way in

which low-income individuals may deal with this insecurity is reliance on the help

of family and friends. There is a strong association between social capital (in the

form of private social networks) and individuals’ insurance against income volatil-

ity (Pericoli, Pierucci, and Ventura 2015). The nature and extent of social net-

works can determine the ability to access a combination of formal and informal

credit sources to manage income fluctuations more effectively (Lenton and

Mosley 2013; Siwicki 2019).

While the literature has highlighted the problem of income volatility for those

on the verge of financial exclusion, who are unable to access affordable financial

products and services that meet their needs, as well as their reliance on personal

networks (see the introduction to this special issue), empirical evidence about the

relative importance of social networks and other strategies in households’ finan-

cial management is scarce. Yearly population surveys, such as the Scottish

Household Survey, allow us to observe which financial instruments people are

using; however, little is known about how informal strategies are used to cope

with dips in income or peaks in expenditure. Traditional studies of financially

excluded individuals in the UK, using surveys, bank account records, or in-depth

interviews are also not frequent enough to capture the detail of individuals’ finan-

cial management strategies or the underlying rationales for their behavior.

This article discusses the day-to-day financial management of people with low-

to-moderate income, living below the UK median household income threshold,

and their experiences of using social capital to smooth consumption, by analyzing

their financial diaries maintained over a six-month period. Our aim is to explore

in depth how financial insecurity and income and expenditure volatility affect

decision-making. Our research objectives are:

Fatma Ibrahim is a PhD candidate at the Yunus Centre for Social Business and Health,

Glasgow Caledonian University. Her research focuses on the connection between money man-

agement strategies and health in vulnerable populations, particularly refugees.

Rachel Baker is professor of health economics and director of the Yunus Centre for Social

Business and Health at Glasgow Caledonian University. She has published on a range of topics,

broadly linked by her interest in researching issues relating to public values, resource alloca-

tion, and health and well-being.

Tim Laxton is a PhD candidate at the School of Health and Life Sciences at Glasgow

Caledonian University.

Cam Donaldson holds the Yunus Chair in Social Business and Health at Glasgow Caledonian

University, where he is also pro vice chancellor research. Over a 35-year period, Cam has

published more than 250 peer-reviewed articles in medical, public health, health policy, and

economics journals.

NOTE: This work was supported by the Chief Scientist Office (CSO) Scotland (FinWell – ref.

CZH/4/1095).