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Abstract
Nearly one quarter of low-income families do not have a checking or savings account, more than one-third do not own cars, 60 percent do not own a home, and 90 percent have no retirement account. In contrast, the typical middle-income family has checking or savings accounts, retirement accounts, owns a car and a home. This brief synthesizes current research on the assets and liabilities of low-income families into a variety of portraits and provides suggestions for future research and policy.
Introduction
Savings and assets can cushion families
against sudden income loss, increase economic
independence, and bolster long-term
economic gains. Yet, most low-income families
lack meaningful assets. In fact, 24 percent
of low-income families lack a bank
account and 35 percent lack even a vehicle,
according to the 2004 Survey of Consumer
Finances. Hurricanes Katrina and Rita
revealed the vulnerability of families that
do not have such assets as vehicles, savings,
or housing insurance to fall back on
in times of crises.
Assets alone may improve outcomes,
but assets alone do not tell the whole financial
story. That is why it is important to
look at the entire balance sheet: comparing
the different assets of families against their
liabilities to arrive at net worth. This brief
portrays the assets and liabilities of lowincome
families and provides suggestions
for future research. The focus is on the
bottom 20 percent of families ranked by
income level (those who have annual
incomes of less than $18,000) and how their
net worth compares with middle–income
quintile families. In addition, the brief
presents the net worth of other categories
of at-risk families, such as single-parent
and minority families.
Data Sources
Wealth data for this brief come from Urban
Institute tabulations and tables produced
by Bucks, Kennickell, and Moore (2006)
using the 2004 Survey of Consumer Finances
(SCF) and by Lerman (2005) using
the 2001 Survey of Income and Program
Participation (SIPP). These are both highquality
surveys, but it is still important to
recognize such data limitations as the use
of imputations for missing asset and liability
data, survey response rates of
68–87 percent, and the exclusion of some
assets that are difficult to measure. For
example, Social Security benefits and
defined benefit pensions are particularly
important assets for low-income families,
yet national surveys generally do not capture
them (Ratcliffe et al. 2007). Vehicles
are often included, but surveys often miss
other consumer durables such as appliances
(the SIPP is an exception). As this
brief depends on national household surveys
for the portraits of assets and liabilities,
little can be said about Social Security
benefits, defined benefit pensions, and
holdings of durable goods other than
vehicles.
The Strong Relationship
between Asset Holdings,
Net Worth, and Income
The relationship between asset holdings
and income is very strong—in fact, it is
exponential (figure 1, dark bars). The
median level of assets of middle-income
(third-quintile) families is nine times the
comparable asset level of low-income
(bottom-quintile) families. The gap is
especially dramatic between low- and
high-income families, with median asset holdings in the top income quintile over
47 times the median assets of those in the
bottom quintile.
The relationship between net worth and
income is even stronger than the relationship
between asset holdings and income
(figure 1, light bars).1 This is because highincome
families are more likely to hold
financial assets like stocks that do not carry
corresponding liabilities, thereby significantly
bolstering their net worth. The effect
of these holdings is substantial: the typical
high-income family has 82 times as much
net worth as the typical low-income family.
(End of excerpt. The entire brief is available in PDF format.)
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Disclaimer: 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.
