2010 Reports

Asset Poverty and Debt Among Families with Children

Aratani, Yumiko; Chau, Michelle M.

Increasingly the significance of asset ownership among low-income families is being recognized. Assets such as savings and homeownership are vital components of a family's economic security, along with income and human and social capital. In this report, we use the term "assets" to refer to financial and economic resources, not including human capital. Unlike labor market earnings, income generated from assets provides a cushion for families in case of job loss, illness, death of a parent, or even natural disaster. This cushion may be especially important for the working poor, whose economic lives can be severely impacted by even short periods of unemployment. Asset ownership can also have long-term consequences for children. Research shows parental financial assets such as savings are positively associated with the cognitive development of school-age children. Homeownership is also known to have a positive effect on high school graduation. There are two major ways in which assets positively benefit children. First, housing assets can be seen as a proxy for the quality of residence. Homeownership provides residential stability, and the market value of homes often indicates the quality of school that children attend. Secondly, financial assets are potential resources for a family to invest in children. They can be used for sending children to preparatory schools or financing a college education. Thus, family assets can positively promote children's well-being and educational achievements. Family assets are particularly important for low-income families; however, the prospects are not particularly bright for building their assets. Given limited incomes, many low-income families often struggle to make ends meet and save. Between 1984 and 2001, the level of debt increased substantially among low- and moderate-income families, and the majority of low-income families experienced having family debt greater than or equal to 40 percent of total family income. Further, the bankruptcy rate among middle-class families has increased; and African-American and Hispanic middle class families are more likely to file for bankruptcy than their White middle class counterparts. This research brief investigates the status of asset ownership and debt among families with children aged birth to 18, using the Panel Study of Income Dynamics (PSID) 2001 and 2007 data. It also examines disparities in asset holdings and debt by race and gender of family heads as well as age of children in the family. As asset holdings and debt can impact the well-being of children, in this report we examine the economic security of families with children based on family asset holdings and debt. First, we explore the concept of asset poverty and estimate the proportion of families who are asset poor, followed by the examination of debt and financial assets of families with children. The report concludes with policy implications and recommendations to promote the financial security of families with children.