The Balance Sheets of Low-Income Households: What We Know about Their Assets and Liabilities. Conclusions

11/01/2007

This report begins to paint a portrait of the assets of selected families by synthesizing current literature in examining the assets and liabilities of low-income, low-education, minority, and single-headed families. Findings are summarized below into assets and liabilities portraits for each family type.

Low-income families

Assets. Based on tabulations of the 2004 SCF, the typical bottom quintile family may own a car (65 percent of families) valued at $4,500 and hold a checking or savings account (76 percent of families) valued at $600. It is those bottom quintile families who own a home (40 percent) valued at $70,000 that raise total median assets for all bottom quintile families to $17,000, one-ninth the assets of third quintile families. Most bottom quintile families do not own a home (60 percent), have no retirement account (90 percent), and have no business equity (96 percent). Social Security and Medicare, if considered wealth, comprise roughly 90 percent of expected wealth for low-income families (Steuerle and Carasso 2004).

Liabilities. The typical bottom quintile family may hold debt (53 percent) valued at $7,000, one-sixth the amount of debt that most (84 percent) third quintile families hold. Bottom quintile family debt is most likely to be credit card debt (29 percent of families) valued at $1,000, installment loans (27 percent of families) valued at $5,600, and home-secured debt (16 percent of families) valued at $37,000. Debt burdens for bottom quintile families that carry debt can be high: 27 percent of bottom quintile families have debt-to-income ratios greater than 40 percent. The combination of assets and liabilities for bottom quintile families results in median net worth valued at $7,500, nearly one-tenth the net worth of third quintile families.

Low-education families

Assets. The typical family headed by someone without a high school diploma may own a home (56 percent) valued at $75,000, a car (70 percent) worth $7,400, and hold a checking or savings account (72 percent) worth $1,100. In total, a typical less-educated family may own assets worth $49,900, or a little less than a seventh of the assets owned by the typical family headed by a college graduate. Most families headed by someone without a high school diploma do not own any retirement accounts (84 percent) or any business equity (96 percent). While less-educated families may not appear well off, the majority own a home.

Liabilities. The typical family headed by someone without a high school diploma may hold debt (53 percent) valued at $12,000, or about one-ninth the debt of a family headed by a college graduate. The reason for the disparity is that while 56 percent of families headed by someone without a high school diploma do own a home, only 25 percent owe mortgage debt (valued at $44,000) compared with 61 percent of college graduate families (valued at $125,000). Families headed by a person without a high school diploma are slightly more likely to carry installment debt (28 percent) valued at $7,000 and credit card balances (30 percent) valued at $1,200, than mortgage debt. The combination of assets and liabilities for families headed by a person without a high school diploma result in median net worth valued at $21,000, just one-tenth the net worth of families headed by a person with a college degree. The net worth gap by education group starts out small at younger ages and then widens sharply with age. However, unlike bottom income quintile families, the majority of less-educated families are homeowners, which makes them relatively better off from an asset standpoint.

Single-headed families

Assets. The typical single-headed family may own a home (55 percent) worth $120,000, a car (77 percent) valued at $7,600, and hold a checking or savings account (88 percent) valued at $2,000. In total, a typical single-headed family may own assets worth $83,400, or less than one-third of the assets owned by the typical married or cohabiting family. Most single-headed families do not own any retirement accounts (65 percent), financial assets beyond their checking or savings account, or any business equity (94 percent). Again, as with families headed by persons without a high school diploma, single-headed families may not be as bad off as bottom income quintile families from an asset standpoint, as a slim majority are homeowners.

Liabilities. The typical single-headed family may hold debt (67 percent) valued at $24,000, a little more than a quarter of the debt that most (82 percent) married or cohabiting families hold. The reason for the disparity is that, very similar to less-educated families, only 32 percent of single-headed families owe mortgage debt (valued at $75,000) compared with 59 percent of married or cohabiting families (valued at $105,000). The typical debts owed by a single-headed family, therefore, are most likely to be credit card debt (41 percent) valued at $1,000 or installment loan debt (37 percent) valued at $8,600. The combination of assets and liabilities for single families results in median net worth valued at $40,000, or about one-fourth the net worth of married or cohabiting families. The net worth gap by marital status starts out small at younger ages and then widens sharply with age.

Nonwhite or Hispanic families

Assets. The typical family headed by someone who is a nonwhite or Hispanic owns a vehicle (76 percent) worth $9,800 and a checking or savings account (81 percent) worth $1,500. This nonwhite or Hispanic headed family may own a home (51 percent) worth $130,000 or a retirement account (33 percent) worth $16,000. In total, a typical nonwhite or Hispanic headed family holds assets worth $60,000, or a little more than a quarter of the assets held by a white non-Hispanic headed family. While only 49 percent of nonwhite or Hispanic headed families do not own a home, 67 percent have no retirement account and 94 percent have no business equity.

Liabilities. The typical nonwhite or Hispanic headed family holds debt (73 percent) valued at $30,500, less than half of the debt that most (78 percent) white non-Hispanic families hold. The reason the gap is not larger is because enough nonwhite or Hispanic headed families pay mortgages (37 percent) worth $83,000 in comparison with white non-Hispanic families (52 percent) with mortgages worth $98,000. Nonwhite or Hispanic headed family debt is somewhat more likely to be credit card debt (47 percent) valued at $1,600 or installment loan debt (43 percent) valued at $9,600, than mortgage debt. The combination of assets and liabilities for nonwhite- or Hispanic-headed families results in median net worth valued at $25,000, less than one-sixth the net worth of white non-Hispanic-headed families.

Renter families

Assets. Based on our findings, the typical renter family may own a car (73 percent) valued at $7,200 and hold a checking or savings account (81 percent) valued at $1,100. Renter families that own a retirement account (26 percent) valued at $11,000 raise total median assets for all renter families to $12,200. Still, this amount is less than one-twenty-fourth of the median assets held by homeowner families. Renter families do not own their homes (by definition), they are unlikely to hold retirement accounts (74 percent) or other financial assets other than a transaction account (about 43 percent), and have no business equity (96 percent).

Liabilities. The typical renter family holds debt (63 percent) valued at $7,800, about one-twelfth the debt that most (82 percent) homeowner families hold. This is almost entirely because these families do not own homes and so do not have mortgages. Renter family debt is therefore most likely to be installment loan debt (45 percent) valued at $8,700 or credit card debt (also 40 percent) valued at $1,500. Debt burdens for renter families that carry debt are typically very low: four percent of renter families have debt ratios greater than 40 percent compared with 15 percent of homeowners. However, 19 percent of renters are delinquent on their debts compared with just six percent of homeowners. The combination of assets and liabilities for renter families results in median net worth valued at $4,000, just one-forty-sixth the net worth of homeowner families. Our findings indicate that homeownership status makes the largest difference in net worth among all of the classifiers considered.

Portrait of a low net worth family

A descriptive portrait of a low net worth family would be one that is bottom income quintile, headed by a single, Hispanic or nonwhite person under 35 years of age without a high school diploma. Families who do not own a home are much more likely to have low net worth than families who do own a home.

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