There are many different types of poverty, but the Asset Opportunity Unit at the Shriver Center focuses on asset poverty. Asset poverty means having insufficient funds to meet one’s needs for three months if income were to disappear for those three months. Focusing on asset poverty is important because assets are the building blocks for economic mobility and financial stability. While income poverty looks at whether people have enough to get by, asset poverty looks at whether people have enough to get ahead.
One way to measure the asset poverty level of a family of four, for example, is to multiply the Federal Poverty Level (FPL) by three months. Based on this calculation, an Illinois family of four would need $5,762.50 in savings to live for three months if they had no other source of income. Putting aside whether the current FPL is a sufficient measure of poverty, the question is whether most families, let alone low-income families, have even this much set aside.
For low-income families receiving public benefits the answer is likely no. This is because asset limits in public benefit programs prevent such families from building a level of resources necessary for future needs. For instance, in Illinois, the asset limit for Temporary Assistance to Needy Families (TANF) is $2,000. Thus, if a family has more than $2,000 in savings, they are not eligible for TANF. In other words, Illinois’s TANF asset limit is only about one third of what a family would need to stay above the asset poverty level. Given such archaic limits, it is no wonder that families remain in poverty and reliant on public benefit programs.
For years, advocates have argued that states should either eliminate their public programs’ asset limits entirely or, at a minimum, increase them to limits more reflective of today’s economic realities. As advocates correctly note, asset limits are a relic of entitlement program policies that no longer exist. Cash welfare programs, for example, now focus on quickly moving individuals and families to self-sufficiency, rather than allowing them to receive benefits indefinitely. Since personal savings and assets are precisely the kinds of resources that allow people to move off public benefit programs, continuing to utilize asset limits runs counter to this policy.
Nevertheless, states have been reluctant to reform asset limits. Although most states have eliminated asset limits in the Supplemental Nutrition Assistance Program (SNAP), and some states have eliminated them in Medicaid, the majority of states still have them in TANF. Most often, fear about increased numbers of people who have significant assets enrolling in public benefit programs is given as a reason for not changing such limits. Yet, a recent study from the New America Foundation shows that in states where asset limits have been eliminated no such increases have occurred. Moreover, the study shows that eliminating asset limits actually reduces administrative costs and time per cases, which allows caseworkers to take on more cases, without increasing workload or administrative costs.
The report, which analyzed the results of interviews and surveys of public benefit administrators in eight states, confirmed previous research that found that most applicants to SNAP and TANF have very few assets anyway and that eliminating asset tests would not significantly increase eligibility. In fact, currently in the majority of states studied very few families were denied program participation due to excess assets anyway. In Idaho, only 2.2% of SNAP application denials were due to excess assets. Thus, an overwhelming increase in cases is unlikely. This is true despite widespread belief that eliminating asset tests will allow wealthy individuals to “game” the system.
The report also noted that eliminating asset limits reduces administrative costs, and the fiscal benefits to the state can outweigh any costs incurred. In Iowa, for instance, direct state costs for eliminating asset limits in its SNAP program were estimated at $702,202, but the overall benefit to the state would be $12.3 million from additional SNAP benefits and increased state employment. Oklahoma determined that eliminating the Medicaid asset limit in 1997 saved approximately $1 million in administrative costs.
The study provides powerful data that advocates can use to convince policy makers that their perceptions about the benefits of asset limits are incorrect. Additionally, these data support advocates’ assertions that, despite what states such as Pennsylvania and Michigan apparently believed when they reinstated asset limits in their public benefit programs, eliminating asset limits is not only necessary for the economic stability of low-income families, but also cost effective for. As the economy begins to improve, now is not the time for states to regress in important policy reforms that will help families become financially self-sufficient.
This blog post was coauthored by Alex Hoffman.