Study: Most Americans don’t have enough
assets to withstand 3 months without income
August 04, 2020
CORVALLIS, Ore. — A new study from
Oregon State University found that 77% of low- to moderate-income American
households fall below the asset poverty threshold, meaning that if their income
were cut off they would not have the financial assets to maintain at least
poverty-level status for three months.
The study compared asset poverty rates
in the U.S. and Canada. Canada’s asset poverty rate has improved over the past
20 years while the U.S. rate has worsened, but still, 62% of low- to
moderate-income Canadians also fall below the asset poverty threshold.
The implications of these findings have
become starkly apparent during the COVID-19 pandemic, said David Rothwell,
lead author on the study and an associate professor in OSU’s College of
Public Health and Human Sciences.
“The fact that the U.S. safety net is so
connected to work, and then you have this huge shock to employment, you have a
system that’s not prepared to handle such a big change to the employment system
… It results concretely in family stress and strain, and then that strain and
stress relates to negative outcomes for children and families,” Rothwell said.
The study, published last week in
the journal Social Policy Administration, looked at financial assets such as
stocks, bonds and mutual funds, rather than real assets like houses and
property, because financial assets are easier to cash in and use in an
emergency. Existing research has found that U.S. wealth inequality is
more pronounced that income inequality.
Researchers used data from nationally
representative financial surveys in Canada and the U.S. from 1998 through 2016,
looking at low- to moderate-income households, defined as those in the bottom
50% of income distribution in each country, headed by working age adults age
25-54.
Rothwell and co-authors Leanne
Giordono from OSU and Jennifer Robson from Carleton University in Ontario,
Canada, were investigating how asset poverty changed over time in the two
countries and how that change was affected by changes in transfer share —
the portion of household income that comes from government assistance. They
chose the U.S. and Canada because of their close geographic proximity and
similar legal traditions but significantly different welfare policies.
In 1998, Canada’s asset poverty rate
among low- to moderate-income households was 74%, compared with 67% in the U.S.
The two rates were nearly identical in 2005, then Canada’s kept falling and the
U.S. rate kept rising, arriving at 62% and 77% in 2016.
Canada spends twice what the U.S. does
on financial assistance for families, and much of it is spent in cash benefits,
rather than in-kind benefits like Supplemental Nutrition Assistance Programs
(SNAP, formerly food stamps) in the U.S. In 2016, 96% of low- to
moderate-income Canadian households received some transfer income from the
government. In the U.S., that number was 41%.
For the most part, results showed that
more generous welfare policies were associated with greater rates of asset
poverty in Canada, Rothwell said. There, as the government reduced the amount
of public assistance families received as a proportion of their income over
time, asset poverty improved.
However, he said, this relationship between
welfare generosity and asset poverty should be interpreted as correlational,
not causal, and the topic warrants further study. Because the levels of public
assistance are greater in Canada than the U.S., it’s hard to extend results
from one country to the other, but when controlling for demographic
characteristics, researchers found that decreasing transfer share has no impact
on the risk of asset poverty in the U.S.
“What stands out there is, so few
American families receive any type of transfers at all, compared to other
countries, and small adjustments to an already minimal safety net was not
related to asset poverty in this study,” Rothwell said. In contrast, Canadian
families receive a child benefit, a monthly cash payment of several hundred dollars
to help with the cost of raising a child.
Many safety net programs, including
Medicaid and SNAP, also disincentivize saving because they impose asset limits
on people seeking assistance. Rothwell calls these a “poverty trap.”
“If you have someone who’s low-income
and they are working hard trying to save money but you’re telling them that
they’re going to lose benefits if they save over some given threshold, that’s a
disincentive to accumulate wealth,” he said.
Rothwell notes that asset poverty rates
are much higher among people of color, due to decades of discriminatory
laws and policies that prevented Black people, in particular, from buying and
owning homes or securing well-paying jobs.
“This is the story of COVID, as I see it
— it’s just exposing these existing inequalities, and the people who are most vulnerable
going into the crisis are magnified in their vulnerability getting through it,”
Rothwell said.
A study coming out later this year from
the same research team will look specifically at racial and ethnic asset
disparities and how they impact people’s health, he said.
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