Palpable poverty: Most Americans don’t have enough assets to endure 3 months without income

CORVALLIS, Ore. — An unsettlingly high percentage of Americans are teetering right on the edge of financial disaster. More than three in four (77%) low-to-moderate income U.S. households have dipped below the asset poverty threshold, according to a new study from Oregon State University.

What exactly does this mean? In the event of job loss or loss of income, these families do not own enough financial assets to stave off a fall below the poverty-level status within three months.

Researchers compared asset poverty rates among American and Canadian citizens for this study. While Canada has generally done better than the U.S. in this regard lately, the Great White North has its fair share of issues as well. Sixty-two percent of of low to moderate-income Canadians also fall below the asset poverty threshold.

Moreover, the study’s authors say these statistics have never been more relevant than right now, due to COVID-19.

“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,” says lead study author David Rothwell, an associate professor in OSU’s College of Public Health and Human Sciences, in a release. “It results concretely in family stress and strain, and then that strain and stress relates to negative outcomes for children and families.”

Asset poverty in America versus Canada

For this study, financial assets like stocks, bonds, and mutual funds were primarily focused on as opposed to houses or real estate assets. Why? Financial assets are much more liquid and available for quick cash if need be.

Nationally representative financial surveys conducted in both Canada and the U.S. between 1998 and 2016 were used for this research. These surveys focus specifically on low-to-moderate income homes, which are any household in either country within the bottom 50% of income distribution.

The team at OSU says they were particularly interested in seeing just how much asset poverty has changed over the years. They focused on transfer share for each home, or the amount of household income provided by government assistance.

In 1998, Canada’s asset poverty rate among these households was 74% and America’s was 67%. Jump ahead to 2005, and the two countries’ asset poverty rates were nearly identical. Since then, however, Canada’s asset poverty rate has continued to improve while the United States’ has worsened.

Generally speaking, Canada spends a lot more money on financial assistance for families than the United States. But, while Canada usually provides cash benefits, the United States more often turns to in-kind benefits like SNAP (Supplemental Nutrition Assistance Program), formerly known as food stamps. Regarding cash benefits, 96% of low-to-moderate-income Canadian households received some kind of transfer income from the Canadian government in 2016. For the United States, that percentage was 41% in 2016.

As far as researchers can tell, Canada’s generous welfare policies are associated with greater rates of asset poverty. As Canada is starting to provide less public assistance to families, asset poverty is actually improving.

However, the study’s authors say the relationship between welfare payments and asset poverty is correlational, not causal. Moreover, it’s difficult to accurately compare Canada and the U.S. in this regard because of how differently the two nations’ welfare programs are set up. That being said, researchers don’t believe tinkering with U.S. welfare programs will have a big impact on asset poverty rates.

“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 says.

Welfare can worsen the problem?

Many U.S. welfare programs have also become “poverty traps,” according to the study. Programs like Medicaid often end up encouraging people not to save money because more assets means less access to assistance.

“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,” Rothwell notes.

Finally, researchers also say that African Americans are subject to much higher rates of asset poverty. This is likely because of decades of discriminatory laws and policies that made it harder for African Americans to earn high salaries and or become home owners.

“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 concludes.

The study is published in Social Policy & Administration.

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