Redesigning Social Welfare: Presenting a New Asset Poverty Measure

Abstract

This study uses data from the Panel Study of Income Dynamics (PSID). Two traditional measures of asset poverty (net worth equal to 3 months at the poverty line; 3 months of annual income), and a new measure we refer to as asset empowerment (on track to achieve financial goal) are used to examine: median net worth trends by asset poverty status, asset poverty rates, economic mobility, probability of being asset poor, and how long it takes to exit asset poverty status. Further, using the three asset measures, we identify three different rungs on the economic ladder which represent different standards of living: survival (meet basic needs), security (cushion to withstand income shocks), and growth (freedom to pursue their economic happiness). Findings indicate that the majority (75%) of White college graduates are living at a security standard, while a majority (63%) of Black college graduates are living at a survival standard. Very few college graduates move from living at an asset poor standard to living at a growth standard between 2009-2021 (a low of 2% and a high of 4%). Survival analysis reveals that 13 years after college graduation, 38% of Black college graduates remain asset poor and 5% of White college graduates remain asset poor. However, having more graduation wealth is associated with a 62% increase in the likelihood of a college graduate moving from an asset poor standard to an asset growth standard of living. Policy implications discussed.