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Household Finance and Food Insecurity

Abstract

Despite repeated expansions of federal food assistance, food insecurity and hunger continue to affect many Americans. While job loss and poverty are among major contributors, theoretical and empirical literature suggest that households’ ability to borrow and save might provide a buffer protecting from food insecurity. Using data from the Panel Study of Income Dynamics, we tested whether liquidity constraint, asset inadequacy, and insolvency risk defined based on financial ratios could predict household food insecurity separately from the effects of income and program participation. Results showed that a household’s liquidity constraint and asset inadequacy were linked with increased risk of food insecurity at all income levels, although the association was strongest among poor households and those with incomes slightly above the federal food assistance eligibility threshold. Unlike indications from qualitative literature, financial constraint appeared to be an exogenous determinant of household food insecurity. Implications for financial practitioners and policymakers are discussed.

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Notes

  1. 1.

    PSID offers Beale Rural–Urban Code, which is a 10-point ordinal scale with lower numbers signifying greater urbanization. However, our preliminary analysis showed that food insecurity was not a linear function on the urban–rural continuum, and was relatively high in very urban and very rural areas compared to areas that were somewhat urbanized. This discouraged us from using the continuous scale of urbanization. Alternatively, using ten dummies created based on Beale codes would result in problems due to some small cell sizes and hurt model efficiency. The decision to group the sample to three categories—rural, urban (omitted category), and metropolitan—was a choice based on this technical consideration as well as to follow the convention in the existing food insecurity literature.

  2. 2.

    The federal SNAP eligibility rules require that receiving households have assets of $2,000 or less, although states vary in handling of asset eligibility tests (http://www.fns.usda.gov/snap/applicant_recipients/eligibility.htm).

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Correspondence to Yunhee Chang.

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Chang, Y., Chatterjee, S. & Kim, J. Household Finance and Food Insecurity. J Fam Econ Iss 35, 499–515 (2014). https://doi.org/10.1007/s10834-013-9382-z

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Keywords

  • Food insecurity
  • Financial strain
  • Liquidity constraint
  • Asset poverty
  • SNAP