What Is Income Poverty?
When most people think about poverty, they’re likely thinking about having a low income: living paycheck to paycheck, not being able to make ends meet, living in poor housing conditions, and not being able to afford enough food for the household. Income poverty occurs when the paycheck-earning members of a household don’t make enough money to meet daily, weekly, and monthly expenses that are crucial to maintain a certain standard of living. In the United States in 2020, the poverty level for a family of four was $26,200. Families earning below this amount were living in poverty.
What Is Net Worth Poverty?
A more sinister aspect of poverty centers around a family’s net worth. “When we talk about wealth (or net worth) poverty, it is the same concept, except we are basing poverty on levels of wealth, not income,” says Lisa Gennetian, co-author of the study and associate professor of early learning policy studies at Duke’s Sanford School of Public Policy. Net worth poverty comes into play when a family lacks enough assets (income minus debts) to cover the family’s basic expenses for three months in the absence of a steady salary. Rates of net worth poverty are much higher than those of income poverty. According to the study, “Black and Latino families were twice as likely to experience net worth poverty than to have poverty-level incomes.” That’s the number the study used as a threshold for net worth poverty. If a family has less than about $6,500 in assets, they are considered to be net worth poor. “Wealth, or net worth, is the value of total household assets,” says Lisa A. Keister, co-author of the study and a professor at Sanford School of Public Policy, Duke University. “Assets typically include savings and checking accounts, retirement accounts, and the value of a family’s home. Then subtract total debts, such as mortgages, credit card debt, and car or educational loans to determine net worth.”
Prevalence of Net Worth Poverty May Increase Due to Pandemic
The researchers determined that in 2019, before the COVID pandemic started, nearly one in three families in the U.S. qualified as net worth poor. The study showed significant financial disparities between racial and ethnic groups: around 57% of Black and 50% of Latinx families met the net worth poverty criteria, compared to 24% of White families. That’s a figure that has likely been made even worse by the staggering unemployment rates brought on by the pandemic. The study highlights a need for policies that can help support families in building wealth that in turn will help them provide better support for their children. If income poverty is a “now” problem, net worth poverty tends to be more of a “tomorrow” problem, affecting a family’s long-term ability to build wealth. “One of the ways that wealth may particularly affect children may be beliefs on how hopes and aspirations may actually materialize,” says Gennetian, “especially for the future, like supporting college or looking toward retirement.”
Policies to Help Reduce Net Worth Poverty
The study highlights a few key policy changes that could have an impact on a family’s net worth rather than focusing solely on income:
Expansion of housing and/or childcare subsidies, since these are often two of the larger outgoing expenses in a working household.Revision of eligibility requirements for programs that require using up all stored wealth first.Increased offering of low- or no-cost grants for families receiving government assistance, with the goal of helping them purchase homes or open savings accounts. Further regulation of predatory lending practices, which marginalized families have a greater tendency to fall prey to.Examine reestablishment of child-directed policies like “baby bonds and child development accounts,” which the study says have showed mixed success in the past.
The information in this article is current as of the date listed, which means newer information may be available when you read this. For the most recent updates on COVID-19, visit our coronavirus news page. Consider supporting policies to help break the cycle of net worth poverty for marginalized families and volunteering in ways that might help alleviate some of the stress.
