According to a recent study from Oregon State University, 77% of low to moderate-income American households are below the asset poverty threshold, which means that if their income were to be lost, they wouldn’t have the money to survive for at least three months in poverty.
The asset poverty rates in the US and Canada were examined in the study. Although the asset poverty rate in Canada has decreased over the past 20 years while it has increased in the United States, 62% of low- to moderate-income Canadians are still below the asset poverty line.
The implications of these findings have become starkly apparent during the COVID-19 pandemic, said David Rothwell, lead author on the study and an associate professor in OSU’s College of Public Health and Human Sciences.
“The fact that the U.S. safety net is so connected to work, and then you have this huge shock to employment, you have a system that’s not prepared to handle such a big change to the employment system … It results concretely in family stress and strain, and then that strain and stress relates to negative outcomes for children and families,” Rothwell said.
In contrast to actual assets like homes and property, which are more difficult to sell and utilize in an emergency, the study, which was published last week in the journal Social Policy Administration, focused on financial assets like stocks, bonds, and mutual funds. According to previously conducted studies, wealth inequality in the United States is more severe than income disparity.
Researchers used data from nationally representative financial surveys in Canada and the U.S. from 1998 through 2016, looking at low to moderate-income households, defined as those in the bottom 50% of income distribution in each country, headed by working age adults age 25-54.
If you have someone who’s low-income and they are working hard trying to save money but you’re telling them that they’re going to lose benefits if they save over some given threshold, that’s a disincentive to accumulate wealth.
David Rothwell
Rothwell and co-authors Leanne Giordono from OSU and Jennifer Robson from Carleton University in Ontario, Canada, were investigating how asset poverty changed over time in the two countries and how that change was affected by changes in transfer share the portion of household income that comes from government assistance. They chose the U.S. and Canada because of their close geographic proximity and similar legal traditions but significantly different welfare policies.
In 1998, Canada’s asset poverty rate among low- to moderate-income households was 74%, compared with 67% in the U.S. The two rates were nearly identical in 2005, then Canada’s kept falling and the U.S. rate kept rising, arriving at 62% and 77% in 2016.
Canada spends twice what the U.S. does on financial assistance for families, and much of it is spent in cash benefits, rather than in-kind benefits like Supplemental Nutrition Assistance Programs (SNAP, formerly food stamps) in the U.S. In 2016, 96% of low- to moderate-income Canadian households received some transfer income from the government. In the U.S., that number was 41%.
“For the most part, results showed that more generous welfare policies were associated with greater rates of asset poverty in Canada,” Rothwell said.
There, as the government reduced the amount of public assistance families received as a proportion of their income over time, asset poverty improved.
However, he said, this relationship between welfare generosity and asset poverty should be interpreted as correlational, not causal, and the topic warrants further study. It is challenging to extrapolate findings from one country to the other due to the higher levels of public assistance in Canada than the U.S., but when demographic factors were taken into account, researchers discovered that lowering the transfer share had no effect on the likelihood of asset poverty in the U.S.
“What stands out there is, so few American families receive any type of transfers at all, compared to other countries, and small adjustments to an already minimal safety net was not related to asset poverty in this study,” Rothwell said.
In contrast, Canadian families receive a child benefit, a monthly cash payment of several hundred dollars to help with the cost of raising a child.
Many safety net programs, including Medicaid and SNAP, also disincentivize saving because they impose asset limits on people seeking assistance. Rothwell calls these a “poverty trap.”
“If you have someone who’s low-income and they are working hard trying to save money but you’re telling them that they’re going to lose benefits if they save over some given threshold, that’s a disincentive to accumulate wealth,” he said.
Rothwell notes that asset poverty rates are much higher among people of color, due to decades of discriminatory laws and policies that prevented Black people, in particular, from buying and owning homes or securing well-paying jobs.
“This is the story of COVID, as I see it it’s just exposing these existing inequalities, and the people who are most vulnerable going into the crisis are magnified in their vulnerability getting through it,” Rothwell said.
A study coming out later this year from the same research team will look specifically at racial and ethnic asset disparities and how they impact people’s health, he said.
