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Living on the Edge
Nearly half of all households in America (43.9 percent) don’t have enough liquid savings to support themselves for three months at a poverty level standard of living, according to a new report, Living on the Edge. Even quite recently, this percentage was much lower. We can blame its rapid rise on the housing bubble, the ensuing financial crisis, and their convergence in the Great Recession.
In the language used “inside the Beltway,” living on the edge like this is called “asset poverty.” What it boils down to is a family of four with savings of less than $6,000. The poverty level is $1,920.83 a month for four people, which, multiplied by three months, comes to $5,762.49. That may seem like a reasonable amount of money at first glance, but keep in mind, it means you would have $5,762.49 to cover all living expenses for you and three family members: housing, utilities, car payments, gas, food, health care, and everything else—including credit card payments. The average asset-poor borrower is carrying $10,736 in credit card debt. Most can’t qualify for a short-term loan at prime rates, so they have few options apart from payday lenders and other high-cost financial services.
Usually, when people talk about poverty, they mean income poverty, not asset poverty. Income poverty means difficult circumstances: Bills you can’t pay. Food you can’t afford. Medicine you have to stop taking. A home you could be put out of. You know all too well that you’re not earning enough money. The difference with asset poverty is that you might not be aware that you are living on the edge. Everything seems fine, until you suddenly lose your job and, overnight, could be facing the same lack of money for necessities as the person who is aware that she’s living in poverty.
Being income poor is almost a guarantee of being asset poor. Without enough money today, how could you afford to set aside more than $5,700 for tomorrow? But seeking help from federal safety net programs is a guarantee of being asset poor-- because many programs require that people use up virtually all their assets before they’re eligible for help. It’s a policy that helps turn what may be a temporary problem (maybe an illness or short-term layoff from work) into a lasting one (no savings to get further education and have a chance of earning more money; or to repair your car when it breaks down so you can still get to – and therefore keep -- your job). Stringent asset limits make no sense, and many states are exercising their right to abolish them or at least raise the extraordinarily tight federal limits.
One in seven Americans is income poor. Depending on where you live, you could easily go an entire day without crossing paths with someone who is income poor. That’s because income poverty has become ever more concentrated in certain zip codes, and marginalized neighborhoods within those zip codes. But asset poverty is virtually impossible to avoid running into – even if you don’t realize that it’s there. The fact that 132 million Americans are asset poor gives me the chills. I can’t help wondering which of my solidly middle-class friends or co-workers is living on the edge. Does it sound like I might be exaggerating? I’m not: 17 percent of households with annual incomes of more than $55,000 are asset poor (and nearly a third of these have incomes of more than $90,000). 13 percent of households where someone has a bachelor’s or advanced degree are asset poor. In 75 percent of asset poor households, someone is working full-time.
I learned of the release of Living on the Edge one day last week, while I was on my way to interview a 25-year-old mother of two small children who’s spent her whole life in poverty. She has $0 in savings. She told me that she has not been able to save anything since the children were born. She is barely able to make sure the kids have enough to eat, and she has gone without food herself to make sure they get enough.
When people with assets are asked how they expect to use their wealth, invariably they say they want to provide advantages to their children. In the 2008 edition of the Hunger Report, Working Harder for Working Families, we proposed a government-sponsored child savings account program that would provide seed money for each child at birth. There would be an additional benefit for low-income children: for every dollar contributed by parents or other individuals, the government would contribute a dollar as well. The proposal is based on a popular program that the U.K. government provided to children born between 2002-2011, discontinued as part of cuts in government spending.
Our job in the Institute includes identifying the root causes of hunger and poverty, so that these problems can be solved for good -- or at least tackled in ways that will work. One of the main reasons so many more households have so few resources now is the breathtakingly reckless behavior of many financial sector firms, led by those on Wall Street—risk-taking that led to the 2008 financial crash. Federal money bailed the firms out afterward, with very little expected of them in return. Maybe the financial sector should provide seed money for newborns, and parents and the federal government could make periodic contributions. It is one way Wall Street could help mitigate the long-term damage that was done to American society when so many additional families fell into asset poverty.
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