![]() Or do we agree? As I look across the broad Keynesian policy consensus, I hear cacophony on that subject. The result is a strong disincentive to saving.īut we agree, more saving would be good. If you save up any money, you can lose health benefits, tuition benefits, and a variety of other help. ![]() Moreover, many government programs feature asset tests. And that fact surely colors their decisions to some extent. But not nearly as difficult as they would be if those people risked dying in the gutter. To be sure, their lives are tremendously difficult. Households that can, or already do, rely on food stamps, unemployment, disability, Medicaid, rent and housing subsidies, and so forth, in times of need, are somewhat protected against income shocks, and in turn have less incentive to save in precaution against such shocks. Households that find the prospect of social security and Medicare reassurance against the prospect of old age don’t save as much. These stark numbers leave the present value of social security, Medicare, and the income-contingent value of government programs out of “assets” and risk-planning picture. The idea that all households should be saving, building assets for retirement and for a rainy day, is not just held among curmudgeonly conservatives.īut, if we want to understand the predicament of low-income households, and if we want to understand the decision-making that in part gives rise to that predicament-rather than echo the usual liberal idea that poor people are like children, buffeted by events and needing the benevolent direction of the self-appointed aristocracy-then it seems a bit superficial to leave out the role of the government. The American Institute’s Charles Murray bemoaning “Fishtown” (in his 2012 book Coming Apart) might make the same comment. I’m delighted any time I spy a broad consensus across the economic spectrum. According to the Board’s recent Survey of Household Economics and Decisionmaking, an unexpected expense of just $400 would prompt the majority of households to borrow money, sell something, or simply not pay at all. for many lower-income families without assets, the definition of a financial crisis is a month or two without a paycheck, or the advent of a sudden illness or some other unexpected expense. for lower and middle-income families, financial assets, including 401(k) plans and pensions, are still a very small share of their assets. Home equity accounts for the lion’s share of wealth. The next fifth of households by income had median net worth of just $27,900.īut even those numbers are in a sense overstated, since much of the “net worth” is in home equity, thus not easily available, as she points out: Among this group, representing about 25 million American households, many families had no wealth or had negative net worth. ![]() The median net worth reported by the bottom fifth of households by income was only $6,400 in 2013. She noted how few assets poor people have: Federal Reserve Chair Janet Yellen recently gave an interesting speech, “The Importance of Asset-Building for Low and Middle Income Households.”
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