Opportunity and Ownership: Wealth Accumulation Over the Life Cycle

More than a quarter of U.S. families are in the bottom 40 percent of both the net worth and the income distributions. For these families, neither assets nor income offers much protection against financial shocks. This fact sheet describes the characteristics of these families. Low-asset low-income families tend to be younger, single, less educated, in poorer health, and minority.

Is poverty incompatible with asset accumulation? We examine whether the poor can and do save and whether they are able to build up assets over time. Data are presented from household surveys, as well as from programs targeted at helping families accumulate assets. Presenting and evaluating the state of knowledge provides a new lens on whether the current income-based safety net could better serve poor families by having an asset building component. Conventional thinking is that families that are income poor cannot save. This chapter shows that this thinking is inaccurate; poverty does not have to be incompatible with asset accumulation.

How do private transfers differ by race and ethnicity and do such differences explain the racial and ethnic disparity in wealth? Using the Panel Study of Income Dynamics, this study examines private transfers by race and ethnicity and explores a causal relationship between private transfers and wealth. We examine private transfers in the form of financial support received and given from extended families and friends, as well as large gifts and inheritances. Our findings highlight important differences in private transfers by race and ethnicity: African Americans and Hispanics (both immigrant and nonimmigrant) receive less in private transfers than non-Hispanic whites.

Today's weak economy, highlighted by job layoffs, high unemployment, and limited lines of credit, underscores the need for families to have savings to draw on during an emergency. Yet, the majority of low-income families have too few assets to weather emergencies. Even prior to the current recession, 57 percent of low-income families were liquid asset poor. This article discusses low-income families' asset holdings and promising policies aimed at addressing their short- and long-term needs. The package of proposals addresses the needs of families over the life course and considers the tension inherent in meeting families' short- and long-term asset-building goals.

Using the 2007 Survey of Consumer finances, this Fact finds large differences in the level and composition of wealth across the income distribution. Before the recession, working-age families in the bottom-quintile had median net worth of $4,300 and held the majority of their wealth in housing. Top-quintile families had median net worth of over $500,000 and held less than one-quarter of their wealth in housing. With few liquid assets to draw from in case of a financial emergency, bottom-quintile families were in a vulnerable position at the onset of the recession.