Asset Building
Emerging research posits that asset poverty, rather than income poverty, is the true measure of poverty in the U.S. Asset poverty is typically defined as having insufficient net worth, including savings, home equity, and other investments, to survive for three months without income at the federal poverty level. By these measures, the asset poverty rate, at 25.5%, is nearly double the federal income poverty rate of 12.7% ¹.
Assets are also distributed far more unevenly than income in the U.S. The wealth gap is even more pronounced for people of color and for women. Among children, for example, studies suggest that 26% of Caucasian children live in asset poor households, compared to 52% of African-American children and 54% of Hispanic children². Disparity in net worth is also pronounced in Massachusetts. Median net worth in households headed by white adults is almost 37 times that of households headed by minorities ($203,000 versus $5,500), giving the state the second worst household asset equality by race³.
In the last decade, new research and practice have documented the importance of wealth and asset development in promoting economic security for the poor. Strategies that help the poor acquire an asset, such as a home, a small business, an investment account, or postsecondary education, represent a promising shift in the fight against poverty.
Research documents the effects of asset holding on neighborhoods, families, and children.
- Neighborhoods. At the neighborhood level, homeownership, a key source of asset building, has been associated with higher property values, lower residential mobility, improved property maintenance, and enhanced social and civic participation.
- Families. Assets have a profound impact on household economic stability. Studies have demonstrated that asset ownership increases overall household savings and investing, reduces the duration of unemployment, helps single mothers maintain their families above the federal poverty level, and lowers a family’s subjective sense of economic hardship.
- Children. The effect of assets on children is especially compelling. Asset ownership is associated with improved educational outcomes for children, including higher high school and college graduation rates, a decrease in the intergenerational transfer of poverty, and a more hopeful and positive orientation toward the future.
The cornerstone of the asset building movement in the last decade has been the emergence of Individual Development Accounts (IDAs). Based in large part on Michael Sherradan’s 1991 book, Assets and the Poor, IDA programs around the country provide financial education and matched savings accounts for low-income individuals. Savings accumulated in an IDA can be used to fund high return investments like home ownership, microenterprise, or education.
In the last several years, the asset building movement has begun to broaden beyond IDAs to include “second generation” asset building services and products for the poor. Promising work in the field includes a ten-year demonstration project on universal children’s saving accounts4 and new efforts to increase low-income individuals’ access to various savings and investment products, including Individual Retirement Accounts (IRAs), 529 college savings plans, and products linked specifically with the Earned Income Tax Credit.
1. R. Boshara, “The Rationale for Assets, Asset-Building Policies, and IDAs for the Poor,” in Building Assets: A Report on the Asset-Development and IDA Field (CFED, 2001). The nation’s official poverty rate rose from 12.5 percent in 2003 to 12.7 percent in 2004.
2. R. Boshara, “The $6,000 Solution,” The Atlantic Monthly, (February 1, 2003).
3. CFED, 2007 Assets and Opportunity Scorecard.
4. One notable initiative is the SEED Initiative (www.cfed.org/focus.m?parentid=2&siteid=288&id=288) , a multi-year national initiative to develop, test, and impel matched savings accounts and financial education for children and youth.