Urban Wire A Safety Net of Income Supports Won’t End Financial Insecurity Alone. Addressing Wealth Gaps Is Just as Important.
Madeline Brown, Signe-Mary McKernan, Trina R. Shanks
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Mother and child embracing.

Social safety net programs, like the Supplemental Nutrition Assistance Program (SNAP) and the child tax credit, are largely based on income. Much policy and research on family and individual financial security centers on income too.

But to truly achieve the goals of such programs to catch families as they fall into poverty, stabilize them, and help them achieve economic independence, the safety net should include both income and wealth supports.

Addressing wealth gaps is a key, but missing, piece of the puzzle

Income is money that comes from employment, social security, and other sources, and wealth consists of assets minus debt. Wealth is directly linked to upward mobility—a primary goal of safety net programs. It provides insurance against tough times, tuition to prepare for a better job, capital to build a small business or buy a home, and savings to retire on.

But the wealth gap is vast; half of all households in the US do not have $2,000 in nonretirement savings, increasing their risk of missed housing and utility payments and eviction.

“As a child I grew up poor, evicted often, living in hotels, homeless at other times, while eating seemed optional, not mandatory, for survival in our house.… The hardest thing I found about being poor is not being hungry. What is almost always overlooked in today’s poverty conversations, though it seems most quintessentially American in spirit and capitalistic in nature, is the desperate feeling when you’re poor—the feeling that you have no tangible hope, no future to plan for.”

Professor William Elliott III, asset-building expert

And building wealth is not equally attainable for everyone. Some assume wealth inequities stem from people’s lack of personal effort to improve their financial situation, but extensive evidence shows wealth inequity stems from policies, programs, and institutional practices that created pathways to building wealth for white families while creating barriers to wealth for Black families. As a result, Black households have less than 15 percent of the wealth of white households.

The racial wealth gap is three times larger than the income gap, underscoring that focusing on income alone isn’t enough to lift people out of poverty.

“Like the narrative that poverty is an income problem, the income first narrative is also doomed to fail. It is not that income approaches are not important or needed. Quite the contrary—it is that they are insufficient by themselves for solving poverty.… While income provides the foundation from which to catapult families out of poverty, assets are the inertia that empowers them with the capability to not only move out of poverty, but pursue happiness.”

Professor William Elliott III, asset-building expert

States have policy options to support both wealth and income

The financial health of states and cities is closely tied to that of its residents, making wealth and income gaps crucial to solve. Luckily, states have options available to them to support both their residents’ income stability and wealth building.

On the income side, from April 2020 to December 2021, the federal government made three rounds of direct payments to individuals totaling $931 billion to address pandemic-related financial stress. Many localities, such as Washington, DC; San Diego County (PDF); and Lansing, Michigan; have also used a combination of public and private dollars to augment those programs. And 31 states plus Puerto Rico and DC have adopted state earned income tax credits (EITCs) to boost families’ incomes.

Infographic showing that income supports like guaranteed income and cash transfers; universal basic income; earned income tax credits, and child tax credits, couple with wealth support like reparations; Medicaid expansion/Universal health insurance; asset limit reform; baby bons; wealth-building subsidies; and matched or incentivized savings accounts can advance financial security

Some states have supported wealth building by addressing systemic barriers that prevent people from accepting income supports while growing wealth. Urban Institute evidence shows SNAP asset limits reduce the likelihood of having a bank account at all, and if someone does, these asset limits reduce the likelihood someone has $500 saved. So, 24 states and DC have eliminated SNAP asset limits altogether. In an additional 16, households with seniors or people with disabilities only face asset limits if their gross income is more than 200 percent of the federal poverty level.

States can also adapt systems to support wealth building. For example, medical debt prevents many families from saving and growing wealth, and 38 states and DC have accepted federal funding to expand Medicaid under the Affordable Care Act.

Wealth-building subsidies and matched or incentivized savings accounts also show promise for increasing wealth among participants, though many require opting in and are only available to people who are employed or already have some means to contribute.

And lately, policies like baby bonds, which enable wealth-building through government savings accounts from birth, are gaining traction. DC and Connecticut have passed baby bonds programs, and an additional seven states have introduced such legislation as of today.

DC’s FY 2022 budget can be an example for other cities and states

Washington, DC, combined income- and wealth-building policies in its FY 2022 budget to curb economic insecurity while addressing racial wealth gaps and helping families plan for their children’s futures. Alongside a preexisting individual development account matched savings program, the FY 2022 budget in DC included the following:

  • $1.5 million to support guaranteed income pilot programs, including the Strong Families, Strong Future pilot, which will direct transfer $900 a month into the bank accounts of 132 expectant and new mothers who live in Wards 5, 7, and 8 and make 250 percent below the federal poverty level
  • expansion of the DC EITC to increase, for filers with a qualifying child, the amount of federal EITC matched by DC from 40 percent to 70 percent for tax years 2022 through 2024, 85 percent for tax year 2025, and 100 percent for tax years after 2025
  • $30 million to provide baby bonds (up to $1,000 annually into a trust fund) for children born in DC to families earning up to 300 percent of the federal poverty level. Every birth covered by Medicaid in a family with a household income under 300 percent of the federal poverty level will receive a government-owned trust at birth with a $500 deposit. Accounts will receive additional deposits annually of up to $1,000 depending on household income. At age 18, the funds will be transferred and eligible for use for postsecondary education, home or commercial property ownership, small business investments, or retirement savings.

The combination of these policies any state or locality might implement will depend on existing infrastructure, available funding, the financial ecosystem, local priorities, and political will.

Safety net programs won’t end the cycle of poverty without addressing both wealth and income gaps. And we have the evidence-based tools to do so. It just requires the willingness of local leaders to acknowledge and address this link.

Research Areas Wealth and financial well-being
Tags Families with low incomes Family credit and debt Family savings Financial stability Income and wealth distribution Inequality and mobility State and local tax issues Wealth inequality Welfare and safety net programs
Policy Centers Center on Labor, Human Services, and Population
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