- Asset poverty
Asset poverty is an economic and social condition that is more persistent and prevalent than income poverty. It can be defined as a household’s inability access wealth resources that are sufficient enough to provide for basic needs for a period of three months. Basic needs refer to the minimum standards for consumption and acceptable needs [http://www.russellsage.org/publications/workingpapers/assetpoverty/document] .
Wealthresources consist of home ownership, other real estate (second home, rented properties, etc.), net value of farm and business assets, stocks, checking and savings accounts, and other savings (money in savings bonds, life insurance policy cash values, etc.)http://www.levy.org/pubs/ppb76.pdf] . Wealth is measured in three forms: net worth, net worth minus home equity, and liquid assets. Net worth consists of all the aspects mentioned above. Net worth minus home equity is the same except it does not include home ownership in assetcalculations. Liquid assets are resources that are readily available such as cash, checking and savings accounts, stocks, and other sources of savings . It is also important to note that there are two types of assets: tangible and intangible. Tangible assets most closely resemble liquid assets in that they include stocks, bonds, property, natural resources, and hard assets not in the form of real estate. Intangible assetsare simply the access to credit, social capital, cultural capital, political capital, and human capital[Shapiro and Wolff, eds. Assets and the Poor. New York: Russell Sage Foundation, 2001. p.212.] .
There are trends in the development of asset poverty over time and several factors that cause certain groups to fall into asset poverty more easily than others. Changes in these factors and structures have occurred over the years, but asset poverty is continually higher than other forms of poverty such as income poverty. The reason for this difference is that asset poverty accounts for a household’s total wealth, and not just the current income level. It provides a more accurate description of a household’s true financial state. Wealth leads to increased economic security and assets create a form of security during hardship. One can use assets to pay for further education, better housing, or to maintain a certain standard of living after retirement . Households lacking sufficient assets are forced to live from paycheck to paycheck and face economic hardship when changes in
incomeoccur. Those who lack adequate assets are unable to seek a better lifestyle and improve their quality of life because they lack the financial resources to do so .
Characteristics of Asset Poverty
Those defined as asset poor share several significant characteristics. Education level, household structure (race, age, gender, marriage status), and home ownership are all unifying factors of the asset poor. Individuals who obtain a college degree are less likely to become asset poor than college dropouts, high school graduates, and high school dropouts . To be more specific high school dropouts were three times as likely as college graduates to experience asset poverty in 1998 Sherraden, Michael W. Inclusion in the american dream: assets, poverty and public policy. Oxford University Press, 2005. ] . In terms of household structure, those who belong to female-headed households or non-elderly households with children are most likely to fall into asset poverty. Couples with no children or married elderly couples are least likely to fall into this position. In general, families with children are the second highest in rates of asset poverty, but they are half as likely to fall into this category if a father is present in the home. The race of the household also affects poverty rates because non-whites are twice as likely as whites to become asset poor. Contrary to what has been reported, from 1989-1998 asset poverty in White Americans actually increased, while asset poverty for African Americans decreased . Home ownership also plays a role in increasing or decreasing the likelihood of falling into asset poverty. Home renters suffer more severe asset poverty because they lack the most prevalent economic asset (a home) and because, on average, they have negative wealth .
Persistence of asset poverty
Asset poverty, when measured in terms of net worth, demonstrates a lower percentage than when it is measured in terms of net worth minus home equity and liquid assets. This is because homes are the largest percentage of household wealth across the country and if they are factored out of the wealth equation, then total household wealth decreases significantly . Also, asset poverty is more likely to persist in several types of situations. First, it is most likely to persist in non-white, single-mother, and elderly households. Second, asset poverty endures in households where the head received little education. Higher education levels correlate with lower probabilities of remaining in asset poverty . Third, ending a marriage increases the likelihood of becoming asset poor, so single-parent households are more likely to become asset poor than two-parent households.
There are also several ways to try to avoid falling into poverty. First, getting married is a way to combine two individuals' assets and avoid poverty. Second, buying a home increases a household’s net worth. However, in order to be successful in helping low-income and asset-poor families escape impoverished lifestyles, home ownership needs to aid in building assets, improving housing, and creating higher-quality neighborhoods [Shapiro and Wolff, eds. Assets and the Poor. New York: Russell Sage Foundation, 2001. p.257] . Thirdly, obtaining an inheritance increases the chances that the poor will escape poverty and decreases the chances that the non-poor will fall into poverty .
Policies and Conclusion
The poor need to accumulate assets in order to decrease national percentages of asset poverty. One program policy aimed at helping the poor develop assets is
Individual Development Accounts(IDAs). These accounts require financial education, they target the poor, and they provide funding through matches, not through tax breaks. IDAs also allow individuals to make deposits into insured and interest-bearing savings accounts. Income-focused poverty plans will not remedy the issue of asset poverty. Asset poverty will only decrease when the poor are able to acquire and sustain assets in order to accumulate wealth [Shapiro and Wolff, eds. Assets and the Poor. New York: Russell Sage Foundation, 2001. p.169.] . Wealth provides economic protection in difficult financial times and it allows people to invest and prepare for the future [ [http://gwbweb.wustl.edu/csd/asset/idas.htm Center for Social Development - Asset Building ] ] . In conclusion, asset poverty appears to be a better measure of poverty in the United States. The probability of an individual or family to raise out of poverty would be illustrated better with asset poverty also. Unlike income poverty, asset poverty incorporates the measure of wealth and transformative assets. The difference between income and wealth as mentioned above is that income is a steady source used to pay bills and take of day to day expenses. Wealth and Transformative assets, however, are long term sources of money that could be used in emergency situations; or, assist in improving one's living conditions or standards . If two families or individuals have the same income but differing levels of wealth or assets, the family with more assets would have a more definite wealth and be able to maintain their social and/or economic status during turbulent times.
Poverty in the United States
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