Why some families who save and save still struggle to make ends meet

Many Americans have a tough time saving, and a book being released this month tries to shed new light on why that may be.

In "The Financial Diaries: How American families cope in a world of uncertainty," co-authors Jonathan Morduch and Rachel Schneider share the patterns they witnessed after following the finances of 235 low- and middle-income families for one year.

For many households, it wasn't a pattern of reckless spending or a lack of financial knowledge that was holding them back. In fact, they were saving regularly. The problem, however, stemmed from inconsistent paychecks (not necessarily from gig economy jobs) and unpredictable expenses, the authors say.

That resulted in families regularly dipping into their savings to cover immediate needs - such as rent, a high heating bill or a surprise car repair - when their paychecks fell short.

"We see people who are smart and knowledgeable, they're working hard," says Morduch. "And somehow, the pieces aren't coming together."

Researchers checked in with the households weekly in 2012 and 2013 to gather data on the money they'd earned, spent, borrowed or saved. The families, who were located in Ohio, Kentucky, California, Mississippi and New York, each had at least one working member.

While the households may not be representative of the struggles faced by the average American family, their stories may offer some lessons about why it can be so hard for some people to save for the long term, Morduch and Schneider say.

Here's what else the researchers found:

• Conventional saving advice just doesn't work for everyone. On average, the households said that 72 percent of the cash they had in the bank would be needed within the next six months. Only 10 percent of the money was for needs that were at least three years away.

So the idea of having a traditional emergency fund, which would cover three to six months' worth of expenses, was out of reach for many of the families. Instead of accumulating a large balance, Morduch and Schneider watched as some families built up savings, depleted them when income was low, and then built them back up again.

Because of the short-term nature of their savings, many families may not benefit much from learning some of the financial basics that are often taught to savers - including the concept that compound interest can help savings grow over time, Morduch says. For many families facing inconsistent paychecks, the strategy of setting up automatic transfers to a savings account also did not work, he adds. "They need different kind of advice," he says.

• Paychecks varied widely. For many families, paychecks can vary widely throughout the year, even changing dramatically from one week to the next. The typical household experienced at least two months a year when income was at least 25 percent below average and two months a year where incomes were at least 25 percent above average. Poor families saw those swings more regularly.

The reasons behind the inconsistency varied, but Schneider says one of the most common explanations given for income volatility - the gig economy - only accounted for part of the story. Some people with full-time jobs still faced swings in income if they relied heavily on tips and commissions, meaning they would suffer during times of the year when business was low.

Among hourly workers, paychecks could vary depending on whether they earned overtime that week or if they were scheduled for fewer hours than usual. Schneider recalled one couple that would sit down to budget for the week on Sunday nights based on the hours that they had scheduled for that week. If the wife was scheduled for 37 hours that week, versus 40 hours, it could have a significant effect on her check, she says. "Normally you say 'set a budget and stick to it,'" Schneider says. "But that's not realistic for this family."

• Expenses were constantly in flux. The researchers went into the project expecting that the families' bills would stay pretty much the same from month to month. The rent bill should be the same in January as it was in February, right? Wrong. Many families found that their actual spending varied each month, based on their income and the bills coming due.

Higher than expected costs, such as a bigger heating bill in the winter, or a surprise home repair, could lead some families to fall behind, Morduch says. For many households, setbacks such as surprise expenses, would pile up over time and make it more difficult for families to feel like they were caught up with their bills. "The majority of the time, it wasn't just one thing" that dug them into a financial hole, Schneider says.

Take the story of a woman the authors named Sarah Johnson, a married mother working part-time in a small town near Cincinnati. (They changed the names of the people profiled in order to protect their identities.) If she missed her $500 mortgage payment one month, she would need to make up for it later by making bigger payments of $650. Johnson was going to school for her master's degree, so their bills were also bigger on the months when her tuition was due. And like many families, the Johnsons faced other seasonal costs and life events, such birthdays, graduation parties and back to school shopping, that increased their monthly spending.

• Big banks didn't always meet their needs. For some families, traditional savings accounts made it too easy for families to use funds that were needed for a bigger expense. Many households found more innovative ways to save by looping in friends and family to hold them accountable.

They stashed money with relatives who would require them to think twice before dipping into the funds. Some people joined saving groups, in which a number of people agreed to contribute a small amount of money, say $100, to a cash pool each week. A different person would receive the total every week, putting pressure on the other members to contribute their part - and forcing them to save.

The approaches didn't always line up with the conventional wisdom that savings should be accumulated over time. But the fixes helped households accomplish a major goal: "They want to have the right money at the right time," Morduch says. "And it turns out that's much much much harder than anyone not in that situation could have imagined."