FAQs

 

What is the difference between income and wealth?
Income is an amount of money received at a point in time, and is generally derived from labor, assets, or government transfers. Income is critical in meeting a wide range of consumption needs. Wealth, on the other hand, encompasses all goods and resources that have value. For example, income can be thought of as a paycheck, while wealth might be a home, business, pension, or investments. The difference between the two is analogous to the distinctions between a spring and a pond, where the spring provides a flow and the pond provides a stock.

While both income and wealth are important economic measures of well-being, wealth provides a more meaningful indication of economic security and thus is a better gauge of the ability of a household to access life's opportunities. Since wealth can be passed on to future generations, wealth inequality can have far reaching implications impacting generations of families.

Though income inequality in the U.S. is severe, wealth inequality is greater. In 1998, the top 20 percent of households in the U.S. earned about 56 percent of the nation's income but owned 83 percent of the wealth. In contrast, the bottom 60 percent earned 23 percent of the nation's income and owned less than 5 percent of the wealth. The bottom 40 percent earned 10 percent of national income but owned less than 1 percent of the wealth.
(back to top)

How many Americans are asset poor?
Though there are several ways to measure asset poverty, it is generally defined as not having the resources necessary to fulfill basic needs such as food, clothing, and shelter for a few months at the poverty level. Researchers Edward Wolff and Robert Haveman have explored this measure of household well-being and found that in 1998 one-quarter to one half of all Americans are asset poor, compared to the official income poverty rate of nearly 12 percent.

While the income poverty rate has declined over the past two decades, the "asset poverty" rate has actually risen. Between 1983 and 1998, income poverty declined by 16 percent while asset poverty rose 14 percent.
(back to top)

What is asset building?
Asset building refers to the broad array of public policies, strategies, a programs that enable people with limited financial resources to accumulate long-term and productive assets, such as savings, investments, a home, post-secondary education and training, and a nest-egg for retirement. While the asset-building system currently in place through the tax code and elsewhere generously and wisely encourages the accumulation of these assets, this system disproportionately benefits the upper-half of families that have higher incomes, better job benefits, and larger income tax liabilities. Rather than redistributing wealth from the top to the bottom or creating a new poverty program centered on assets, the policy challenge is to extend the asset-building policies already in place to lower-income persons. Like the Homestead Act of the 19th century, and the GI Bill of the 20th, broad-based asset building or "stakeholding" will expand economic opportunity and security to this and future generations, stabilize families and neighborhoods, invigorate democracy, and grow the U.S. economy over the long term.
(back to top)

How is asset building different from current social welfare programs?
Current social welfare programs aimed at the poor have largely been successful at maintaining a minimal level of consumption, which is what they were designed to do. Poverty, accordingly, has been defined as being at or below this level of consumption. It has always been primarily focused on maintenance, not development. However, it is difficult to spend or consume one's way out of poverty, just as it is impossible to borrow one's way out of debt. Asset building, by contrast, is designed to move families forward, economically and socially. Unlike traditional public assistance programs, which disallow the accumulation of assets by the poor, asset building strategies aim to significantly build up the asset base of the poor. As a development strategy, it is designed to foster economic security and opportunity, as well as enable both to be passed on to future generations. Finally, the ownership of assets can affect the way one thinks and feels, the way one is regarded by others, and how one views the future, in ways that income alone cannot.
(back to top)

Why is asset building important?
Very few people would argue that assets do not matter. Assets not only provide an economic cushion and enable people to make investments in their futures; assets also provide a psychological orientation-toward the future, about one's children, about having a stake in America-which income alone cannot provide. Michael Sherraden, author of Assets and the Poor, observes that, "Few people have ever spent their way out of poverty. Those who escape do so through saving and investing for long-term goals." Melvin Oliver and Thomas Shapiro, authors of Black Wealth/White Wealth, observe that "Wealth is a particularly important indicator of individual and family access to life chances…It is used to create opportunities, secure a desired stature and standard of living, or pass class status along to one's children."

Researchers Edward Scanlon and Deborah Page-Adams find that there is increasing evidence that assets do in fact have a range of important positive effects on children, families, and neighborhoods. They found that there is increasing evidence that assets:

  • are associated with economic household stability
  • decrease economic strain on households
  • are associated with educational attainment
  • decrease marital dissolution
  • decrease the risk of intergenerational poverty transmission
  • increase health and satisfaction among adults
  • increase property values
  • decrease residential mobility
  • increase property maintenance
  • increase local civic involvement

Also, compelling anecdotal evidence from Individual Development Account programs suggest that these "asset effects" may occur sooner and be more powerful than expected.

Finally, asset building is important because it provides a new way of structuring public policies for lower-income Americans. While poverty policies historically and today have been focused on consumption and maintenance, complementary asset building policies can focus on expanding economic security and opportunity and, by doing so, expand the U.S. economy as well.
(back to top)

Which organizations make up the assets field?
The idea of building assets for the poor was first proposed in the late 1980s by Michael Sherraden. In his seminal 1991 book, Assets and the Poor, he articulated a theory of welfare based on assets, and proposed an asset building tool called Individual Development Accounts, or IDAs--matched savings accounts for low-income person typically used for homeownership, post-secondary education, and small business development. Sherraden has directed the Center for Social Development (CSD) at Washington University in St. Louis since its founding in 1994, where he and his colleagues have continued to conduct research and evaluation efforts on IDAs and other asset building strategies.

Robert E. Friedman, founder of the Corporation for Enterprise Development (CFED), has been a pioneer in the field of asset development for the poor, especially promoting policies and community-based programs for IDAs. Thanks largely to CFED, over 20,000 persons in the U.S. now have IDAs, all them supported by over 500 community-based organizations with matching funds coming from a variety of private and public sources. CFED is also spearheading a privately funded children's saving account initiative called SEED, designed to reduce intergenerational poverty and asset inequality.
(back to top)

Will an investment in asset building be worth it?
The United States has a rich history of asset accumulation made possible by generous government subsidies-and these investments have generated huge returns for the nation. Nearly a quarter of all American adults today have a legacy of asset ownership that can be directly linked to the Homestead Act. The GI Bill has generated returns to our country of up to $12.50 for every dollar invested. In addition, the U.S. government has invested heavily in higher education, also with great returns: those with college degrees or higher can expect to earn $2.1 to $3.4 million over their lifetime, compared to $1.2 million for high school graduates. Outside the U.S., "stakeholding" has a long and successful history as well. In post-war Japan, land was redistributed to millions of farmers, laying the foundation for broad-based economic success. Singapore has achieved one of the highest rates of savings and homeownership in the world through its Central Provident Fund. And Britain provides each of its 700,000 children born every year with a savings account, or "Child Trust Fund," as a way of modernizing its welfare state and creating a nation of stakeholders.
(back to top)

Will these programs replace the existing safety net for the poor?
No. Asset building initiatives are, and work best as, compliments to existing safety net programs. Asset building programs and policies are not meant to be new poverty programs. Instead, asset building is best understood as an extension of the current, $300 billion a year asset development system--which primarily reaches middle and upper-income persons--to lower-income persons. There are, however, a few instances where safety net programs intersect with asset building programs-such as the option to fund IDAs or the equivalent from income support programs (e.g., TANF or SSI). Also, asset limits in public assistance programs present significant barriers to asset accumulation by the poor. In many ways, assets are the missing piece of the poverty puzzle, a strategy that until recently had not been considered, but that does not mean that funding for asset building programs should come from existing anti-poverty programs.
(back to top)