Brief #1 in the series Opportunity and Ownership Project

The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.

Note: This report is available in its entirety in the Portable Document Format (PDF).

Building up assets and avoiding excessive debt can help families insure against unforeseen disruptions, achieve economic independence, and reach the middle class. Assets are especially important for low-income families because they can spend assets on necessities when unemployment (or another shock) suddenly reduces their incomes. Some authors label as "asset poor" those who lack the assets to replace three months of income (e.g., Caner and Wolff 2004); families also need assets to secure loans during income shortfalls. According to a recent paper by James Sullivan (2004), unemployed families with assets often borrow to maintain their consumption levels. Without assets, their consumption declines, partly because they have trouble borrowing—access to a $500 loan reduces hardship as much as a 300 percent increase in income (Mayer and Jencks 1989).

Have low- and moderate-income families been able to turn asset-building objectives into reality? Or do American families do too little saving and investing? This brief examines two national data sets that include representative samples of American families.¹

First, we ask what levels of assets and liabilities one should expect for low- and moderate-income families choosing a sound saving and investment strategy. Theoretical considerations suggest the importance of life cycle factors in the ability to accumulate assets. Next, we examine the assets that American families actually own and the debt that they owe. The focus is on age profiles of low-income families and of families headed by less-educated individuals. Third, we analyze the variation across families and consider which families achieve healthy balance sheets in spite of low long-term incomes and/or low education. Fourth is the role of debt that may limit families' ability to reach sound levels of net worth. The concluding section summarizes the findings and highlights unanswered questions about asset formation for low- to moderate-income American families.

Notes from this section

The author thanks Henry Chen for excellent research assistance and Adam Carasso, Signe-Mary McKernan, and Eugene Steuerle for comments.

1. The two data sets are the Survey of Consumer Finances and the Survey of Income and Program Participation. An important data set not included was the Panel Survey of Income Dynamics.

Note: This report is available in its entirety in the Portable Document Format (PDF).

The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.

Usage, posting and reprint of materials on the UI web site:

Most publications may be downloaded free of charge from the web site in PDF format. This information may be used and copies made for research, academic, policy or other non-commercial purposes. Proper attribution is required.

Copyright of the written materials contained within the Urban Institute website is owned or controlled by the Urban Institute. Posting UI research papers on other websites is permitted subject to prior approval from the Urban Institute—contact paffairs@urban.org.

If you are unable to access or print the PDF document please contact us or call the Publications Office at (202) 261-5687.