DURHAM, N.C. — The coronavirus pandemic exacted a heavy toll the U.S. economy in 2020. Lockdowns around the country left millions without a job and many more struggling to pay their bills. While the pandemic has left countless families in dire straits, a new study reveals America’s financial troubles actually go back further than COVID-19. Researchers from Duke University say a third of all American families with young children were “net worth poor” even before the financial crisis of 2020.
Study authors explain that, unlike having a low income, being “net worth poor” means lacking the financial resources (like money in a savings account) to support your family at or above the poverty line for three months. The report finds 57 percent of Black families and half of Latino families with children were net worth poor in 2019. Only 24 percent of white families ended 2019 in the same financial situation.
“These ‘net worth poor’ households have no assets to withstand a sudden economic loss, like we have seen with COVID-19,” says study co-author Christina Gibson-Davis in a university release. “Their savings are virtually nil, and they have no financial cushion to provide the basics for their children.”
A serious issue with savings
The study looked at the Survey of Consumer Finances which analyzed family assets and income from 1989 to 2019. Over 19,000 U.S. households with children under 18 years-old participated in the survey.
The results reveal net worth poverty among American families has been consistently rising over the last three decades. Specifically, researchers consider two-parent, two-child families with less than $6,500 in assets or savings as net worth poor in 2019. This amount represents less than one-fourth of the federal poverty line. Families falling into this category actually outnumbered families classified as poor based on their annual income alone.
“Uncovering this aspect of poverty, which hinges on wealth, is game-changing,” says co-author Lisa Gennetian. “Most policies focus on income and families meeting their day-to-day needs. These efforts are important. But our findings suggest that they are not helping families increase savings that help set children up for success.”
Savings inequality may be worse than income inequality
Researchers note that Black and Latino families are twice as likely to be net worth poor than they are to have incomes putting them below the poverty line.
“Reducing one kind of poverty isn’t helpful if another one is taking its place,” contends Lisa Keister, a professor of sociology at Duke. “Being net worth poor likely limits parents’ abilities to invest in their kids and shapes how they think about their kids’ future.”
“Even before the pandemic, many families with children were in a precarious situation,” Gibson-Davis concludes. “Things are not going to get better in the wake of COVID-19.”
According to reports, around 70 million Americans filed for unemployment benefits from the start of the coronavirus pandemic through the end of 2020.
The study appears in the Journal of Marriage and Family.