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What is Asset Poverty?

Most people think of poverty as a lack of income, but by limiting our understanding of poverty to income alone, we miss a critical piece of what families need to get by. An asset-poor household is one in which a sudden halt in income would have serious consequences immediately. Asset poverty is a measure of whether a household can support itself using savings or other available assets for 12 weeks at a poverty-level income.  Far more households are asset-poor compared to income-poor: 22.4 percent compared to 10.2 percent respectively.  ¹

Assets are another way of thinking about the financial well-being of families. Families use income to pay the rent and buy food, put gas in the car and pay their bills. They acquire assets to invest in their future and protect themselves if they fall ill and can't work or lose their jobs. These include home equity, stocks and bonds, savings accounts, pensions and retirement plans among other kinds of assets.

Imagine a family in which the head of the household loses his or her job and is unemployed for 12 weeks. In a typical nonrecession year, there are between 25 and 35 million new unemployment cases. ² Thirty percent of all families with children are considered asset poor, and for minority groups it is 44 percent. ³ Most of these families are not living below the income poverty line, so they are not identified officially as poor but are clearly living on the edge of a potential financial disaster.

The United States has a high degree of income inequality, but income inequalities are dwarfed by inequalities in who owns assets. The lowest-earning 40 percent of U.S. workers take home 10 percent of the nation's income, but own just 1 percent of wealth-building assets. ⁴ Assets are called the building blocks of wealth. It may sound odd to be talking about helping families build wealth when they barely have enough income to live on, but the two are not disconnected and a more long-term, sustainable approach to reducing poverty would encourage families to build assets as well as taking advantage of cash assistance or in-kind transfers like food stamps to compensate for low income.

In their book Black Wealth/White Wealth, Melvin Oliver and Thomas Shapiro expose the shocking inequalities of wealth along racial lines in the United States. A typical African American family earns 66 cents in income for every dollar earned by a white family. But in terms of wealth, African American families own just 7 cents for every dollar owned by white families. Hispanic families do slightly better with 11 cents for every dollar of white wealth. ⁵ This means that when many African American and Hispanic families are in a financial bind, they depend almost exclusively on their wages. Oliver and Shapiro, among others, argue that closing the wealth gap is the paramount civil-rights issue of our time.

Endnotes

1. 2007-2008 Assets & Opportunity Scorecard (2007), Corporation for Enterprise Development.
2. Wayne Vroman (2003), Extending Unemployment Insurance (UI) Protection, Urban Institute.
3. 2007-2008 Assets & Opportunity Scorecard (2007), Corporation for Enterprise Development. 
4. Ray Boshara (2003), The $6,000 Solution: Wealth, Like Deby, is Self-Replicating,  The Atlantic Monthly.
5. J. Larry Brown et al. (2004), Building A "Real Ownership Society" Institute on Assets and Social Policy.