Do Asset Limits in Social Programs Affect the Accumulation of Wealth?

Brief #4 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.

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Public assistance programs provide benefits only to those with too few resources to support themselves. Generally, such programs consider both assets and income in determining eligibility for benefits and payment amounts. The rationale for this approach is that the government should not have to support people who can take care of themselves by converting bank accounts, stock holdings, vehicles, or retirement accounts into cash or collateral. As such, assets are considered "means" that should allow families to avoid destitution. Assistance programs typically do not count assets below some low threshold, allowing families some savings or a car that may be necessary for work. However, families with assets above the threshold may be ineligible if they fail the so-called "asset tests" designed to target payments to those most in need.

Asset tests can create a disincentive to save among families who might subsequently qualify for benefits. Sometimes one additional dollar of assets can result in the loss of thousands of dollars per year in public assistance benefits. This raises the question: Do asset tests actually discourage savings and reduce asset accumulation among families who might qualify for public assistance benefits? At least one influential paper says yes. Hubbard, Skinner, and Zeldes, in their 1995 article, interpret the low levels of wealth accumulation among low-income households as a rational, utility-maximizing response to asset-based, means-tested welfare programs.

This brief describes current asset tests and discusses their role in reducing asset building by low-income families. We identify the target population subject to asset tests, describe the various asset tests, review background data and previous research, consider strategies for meeting a mix of objectives, and point to the need for additional research and policy analysis.

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.

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