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Do Assets Help Families Cope with Adverse Events?

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Document date: December 01, 2009
Released online: December 14, 2009

Abstract

Family events, such as a job loss, the onset of health limitations, and a change in family structure, can adversely affect family well-being. The impact of these events may be mitigated if the family holds assets that can be used to maintain consumption. Using the SIPP, this study examines the role of assets in families' economic stability. We find that families in all parts of the income distribution experience material hardship after a negative event. Further, in the aftermath of a negative event, asset-poor families experience more hardship than non-asset-poor families, with assets helping most for low- and middle-income families.


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Introduction

Family events, such as a job loss, the onset of health limitations, and a change in family structure, can adversely affect economic well-being. The impact of these events may be mitigated if the family holds assets that it can draw on to maintain consumption and material well-being.

This study examines the extent to which families that hold assets are better able to maintain their level of material well-being in the face of adverse events, compared with families that do not hold assets. In essence, this work looks at the role of assets in families’ economic and material stability, a potential benefit of asset-building programs for low-income families. We use the 1996 and 2001 panels of the Survey of Income and Program Participation (SIPP) to address two key research questions: (1) What is the relationship between events and material hardship? and (2) Given that an event occurs, do families with assets have lower levels of material hardship?

We answer the questions by examining the relationship between events and material hardship and by looking at the relationship between asset holdings and material hardship, given that an event occurs. We also assess the relationships between adverse events, material hardship, and asset holdings for families in different parts of the income distribution.

This study builds on the substantial literature that examines income volatility (e.g., Burkhauser and Duncan 1989; Congressional Budget Office 2007; Gottschalk and Moffitt 1994; Haider 2001; and Nichols and Zimmerman 2008) and another literature that examines how life events contribute to income losses, recoveries, or poverty status (e.g., Acs, Loprest, and Nichols 2009; Bane and Ellwood 1986; Gosselin and Zimmerman 2008; and McKernan and Ratcliffe 2005).1 This study builds on these literatures by examining how asset holdings cushion the blow of negative life events, a key hypothesis in the asset-building literature. Our results suggest that assets do help families cope with adverse events.

  • Families that experience a negative event— such as an involuntary job loss, onset of a health-related work limitation, or a parent leaving the family—are significantly more likely to experience material hardship.
  • Families in all parts of the income distribution experience material hardship after a negative event occurs, but more low-income families face hardship.
  • In the aftermath of a negative event, assetpoor families experience more hardship than non-asset-poor families. Assets help both in the bottom and middle thirds of the income distribution and help less in the top third of the income distribution.

(End of excerpt. The entire brief is available in PDF format.)



Topics/Tags: | Economy/Taxes | Families and Parenting | Poverty, Assets and Safety Net


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