Abstract
This paper analyzed the influence of financial behaviors on the duration out of asset poverty while controlling for households’ life cycle and demographic characteristics. We found evidence for the existence of structural barriers to asset acquisition. Asset accumulation at or above levels equal to nine-months worth of income at the income-poverty level was important for improving a household’s odds of permanently escaping asset poverty, but a linear relationship between asset accumulation and the likelihood of returning to asset poverty did not emerge. Moreover, minimizing debt and diversifying the asset portfolio to include more productive assets were positively related to maintaining assets; but households should also consider the risks associated with portfolio allocations.
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Notes
The income poverty threshold adopted by the US government is based on the income a household makes, adjusted for inflation and household size. It has been used as a benchmark for comparison across studies over time and also for determining qualifications for various government assistance programs.
Results of the robustness checks are available from the authors upon request.
Automobile ownership is measured as the net market value of the vehicle: the value of the vehicle minus any outstanding debt on the vehicle.
The most frequent form of missing data that causes a household to be excluded from the final models is educational attainment. The PSID does not reassess this variable at every data administration; thus, it has a higher frequency of missing values.
1994 was the most recent year that asset data were available in the PSID prior to 1999.
The exceptions are Owner and Auto, which are not allowed to vary because of concerns for endogeneity, as previously mentioned.
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The views expressed in the paper are those of the authors and do not necessarily represent the views of the Federal Reserve Bank of Dallas or the Federal Reserve System.