1 Signe-Mary McKernan Caroline Ratcliffe Katie Vinopal The Urban Institute Rebuilding the Road to Financial Stability June 29, 2011 Contact information: Do Assets Help Families Cope with Adverse Events?

2 Research Design Data: Nationally representative sample of 17,000 families from the Survey of Income and Program Participation Timing: Start by looking at family over 1 year –Measure the familys income and assets at the beginning of the year –Did the family experience a negative event during the year? –Did the family experience material hardship the following year?

3 Findings - Asset Poverty (Table 1 page 3) Over half of families are liquid-asset poor Median asset holdings: $3,292 Asset-poverty threshold: $4,263 Liquid-asset poverty rates decrease as income increases –85% of families in bottom third –52% of families in the middle third –21% of families in the top third

4 Findings - Hardship by Asset Poverty (Figure 3 page 7) When a negative event occurs, asset-poor families are about two to three times more likely to experience general deprivation than non-asset-poor families. –For example, among those with an involuntary job loss, 44% of asset-poor families experience general deprivation as compared with only 16% of non-asset poor families.

5 Findings - Hardship by Asset Poverty & Income (Figure 4 page 8) Assets poor families in all thirds of the income distribution are more likely to experience general deprivation, after an involuntary job loss, than non-asset poor families. Having enough assets to live at the federal poverty threshold for three months is at least equivalent to being in the next highest third of the income distribution.

6 Implications Both assets and income are important in cushioning the blow of life events Encouraging low-income and middle-income families to build assets by providing them incentives to save could help alleviate hardship Currently, most of the $400 billion in subsidies to support asset building is administered through the tax code and primarily benefits high-income families