About Asset Building

Background

Asset building is an anti-poverty strategy that helps low-income people move toward greater self-sufficiency by accumulating savings and purchasing long-term assets. The theory behind this approach is that helping people purchase an asset, as opposed to simply increasing their income, provides stability that may allow them to escape the cycle of poverty permanently. Examples of long-term assets include a home, higher education and training, and a business.

According to recent research, a quarter of American households are "asset poor," meaning the individuals and families have insufficient financial resources to support them at the poverty level for three months (during a suspension of income). Even more troubling, asset poverty affects children at a disproportionately greater rate. Forty-seven percent of all American children live in households with no net financial assets. Rates for racial and ethnic minorities and minority children in the United States are even more severe.

Research conducted throughout the last decade on the effects of asset building on low-income, low-asset families indicates that positive results extend beyond tangible assets accumulated. Families with assets experience a psychological orientation toward the future, a decrease in marriage dissolution, and improved housing stability. Families engaging in asset building also tend to experience improved health and well-being, increased civic and community involvement, and decreased rates of transfer of poverty to the next generation.

Tools for Asset Building

Asset-building strategies incorporate many different approaches and use a variety of tools to help achieve the goal of creating asset wealth for low-income people. Government, private philanthropy, research institutions, and community-based groups are all involved in asset building. Some of the most common tools for asset building include the following:

• Individual Development Accounts (IDAs) – Matched savings accounts designed to help low-income and low-wealth families accumulate savings for high return investments in long-term assets such as a house, higher education or a small business.
• Earned Income Tax Credit (EITC) – Refundable Federal income tax credit for low-income workers. Many States also offer EITCs for working families. EITCs enable many low-income tax filers to receive a cash payment from the government regardless of whether they pay income taxes.
• Financial Literacy – Skills and knowledge that successfully enable low and moderate income individuals to manage their finances, save for their IDA asset goals, and engage the economy in a more proactive manner. (adapted from CFED)
• Children's Savings Accounts – Special savings accounts that enable children to accumulate savings, and eventually long-term assets, for their future.
• College Savings Accounts – Special savings accounts that enable families to save for the costs of college for their children at an accelerated rate.