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Abstract
Low-wage jobs can be unstable, leaving families struggling to cope with employment gaps and financial emergencies that can strike without warning. About four in five low-income families are "asset poor," lacking enough liquid savings to live for three months at the federal poverty level without earnings. In this essay, McKernan and Ratcliffe suggest a cluster of policies that would improve financial markets and savings opportunities for low-income families across the life cycle.
Introduction
Low-wage jobs can be unstable, leaving families struggling
to cope with employment gaps and financial
emergencies that can strike without warning.To make
matters worse, low-income working families typically
have few assets to get them through these hard times.
Government social programs can help but may be inadequate
or unavailable for some households. One potential
solution is asset-building: savings or assets can help
low-income families weather a sudden job loss or health
crisis and realize such long-term goals as owning a
home or financing retirement.
Low-Income Families Are "Asset-Poor"
About 8 in 10 low-income working families are ?asset
poor,? meaning they don?t have enough assets or savings
to live on for three months at the federal poverty
level. A slim majority (57 percent) has a bank account,
but the median value is $800?too small to see a family
through even a short employment gap. Nearly half
(46 percent) own a home, with a median equity value
of $45,000, and only 21 percent have a retirement
account. Most (83 percent) own a car, with a median
equity value of $3,700, but the few who don?t are at a
significant disadvantage getting or keeping a job.
With few assets to draw on during emergencies,
many families turn to expensive short-term loans that
can lead to a cycle of debt. They lose out on opportunities
to invest in education for themselves or their children and can?t move up the income ladder to better
economic security.
The majority of federal spending to promote savings
goes toward tax breaks that most low-income
families will never see. Federal policy actually discourages
savings among low-income families by using asset
tests for means-tested transfer program eligibility, such
as Food Stamps.
(End of excerpt. The entire report is available in PDF format.)
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.
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