Scholars Say Asset Building is Vital to Economic Well-Being of Low-Income Familes

Contact: Elizabeth Cronen, (202) 261-5723, ecronen@urban.org

WASHINGTON, D.C., September 12, 2008—Traditional social policies to bolster income for the poor aren’t enough to meet 21st-century economic realities, write Signe-Mary McKernan and Michael Sherraden in the new book Asset Building and Low-Income Families, from the Urban Institute Press.

Fast-changing labor markets and growing economic inequality mean that low-income families need more than stop-gap income support in hard times, according to McKernan and Sherraden, coeditors of the volume. Their analysis finds that building wealth—putting money in a bank account, saving in a retirement fund, owning a home—is vital for the economic security and advancement low-income families. Most government policies ignore this key goal, they point out, and some undermine it. McKernan, Sherraden, and other top experts size up the current data on assets, analyze the benefits of asset holding, and consider policy responses—making the book the first comprehensive review of asset policy.

“Not only are families with assets more able to stay afloat when hit with abrupt hardships like unemployment,” says McKernan, “they also are in a better position to hold out for a higher-paying job, to plan for educating their children, or to consider buying a first home.”

Among the poorest 20 percent of households, most have a bank account, but the median balance is only $600. Ninety percent of the families in this income group have no retirement account, and 60 percent are not homeowners. Among the 40 percent who do own homes, the median value is $70,000, compared to the $100,000 median value of homes owned by families in the second-poorest 20 percent.

Large disparities in asset holding exist across the income scale, McKernan, Sherraden and coauthor Reid Cramer observe in one chapter. They report that the top 10 percent of U.S. households ranked by income earn 42 percent of the nation’s income, but own 67 percent of total family net worth. The bottom 60 percent earn 18 percent of the nation’s income and own less than 10 percent of the nation’s wealth, they write.

McKernan and Sherraden describe the unequal effects of asset-promoting public policies and explain program rules that discourage some low-income households from buying homes or investing in other assets. For example, subsidies are available for low-income renters and not homebuyers, and asset-owning families are ineligible for benefits in many public programs. The most common U.S. housing subsidy is the mortgage-interest tax deduction, which most low-income families cannot use because they owe little in taxes or do not itemize. In fact, McKernan, Sherraden, and Cramer cite data showing that 60 percent of the two largest federal homeownership expenditures—the mortgage-interest deduction and deductions for property taxes—go to the top 10 percent of households by income.

Asset Building and Low-Income Families presents several policy options that complement current income supports. The authors explore converting the mortgage-interest deduction into a refundable tax credit, propose easy-to-open subsidized savings and retirement accounts, and recommend simplifying and raising asset limits in public programs.

While the authors describe asset-building policies as emerging counterparts to traditional income-supporting social policies, they note the long American tradition of asset promotion—from the Homestead Act of 1862 to the GI Bill of 1944. McKernan and Sherraden write, “The future for asset-based research looks promising both intellectually and practically.”

Asset Building and Low-Income Familiesis available from the Urban Institute Press (300 pages, ISBN 978-0-87766-754-4, $29.50). Order online at http://www.uipress.org, call 410-516-6956, or dial 1-800-537-5487 toll-free. More information is available at http://www.urban.org/books/assetbuilding.

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