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

11/01/2007

Financial assets include transaction accounts (checking and saving accounts), certificates of deposit, financial securities and options, mutual funds, pooled investment funds, retirement accounts, cash value life insurance, personal annuities and trusts, royalties, leases, futures contracts, proceeds from lawsuits and estates, and loans made to others. Nonfinancial, tangible asset holdings, like homes, vehicles, and businesses, are discussed separately below.

Eighty percent of families in the bottom income quintile hold some type of financial asset (exhibit 4). Seventy-six percent of bottom quintile families have transaction (checking or savings) accounts, although the median balance is $600. Finally, roughly 5 percent of bottom quintile families have any holdings of stocks, bonds, certificates of deposit, or pooled investment funds and just 10 percent have retirement accounts.

Exhibit 4.
Percentage of Families Holding and Median Value of Select
Financial Assets by Family Characteristic, 2004

(in thousands of 2004 dollars)

Exhibit 4.  Percentage of Families Holding and Median Value of Select Financial Assets by Family Characteristic, 2004. See text for explanation.

Source: The Urban Institute. Data from Bucks et al. (2006) and Urban Institute tabulations using the 2004 Survey of Consumer Finances.
Note: Breakout of income quintiles: Q1: <$18,000; Q2: $18,000-$31,999; Q3: $32,000-$51,999; Q4: $52,000-$85,999; Q5: >85,999.

Transactions accounts, such as checking and savings accounts, are widely held across families at all incomes (70 percent or greater, regardless of the classifier used, upper panel of exhibits 4 and 5). The likelihood of holding other financial assets, like stocks or retirement accounts (i.e., participating in an employer-sponsored pension plan or an Individual Retirement Account), is less overall and falls to very low rates for families in the bottom income quintile, and headed by persons below age 35 or with less than a high school diploma. Families who rent or who are headed by persons who are single or are nonwhite or Hispanic have roughly a 30 percent chance each of participating in a retirement account. While a smaller proportion of families hold stocks and retirement accounts than hold transaction accounts, the median value held in stocks and retirement accounts is much higher for those who hold them.

Overall, median financial asset values (for families holding financial assets) differ substantially by income group (exhibit 4). For families holding any financial asset, bottom quintile families hold $1,300, while third quintile families hold $15,500. Fifth-quintile families, meanwhile, hold $236,700.

Age differences may partially explain the large differences in financial account holdings by income. Particularly in these charts of financial asset holdings, there appears to be a high correlation between age and those families falling in the bottom income quintile. The concern, as raised earlier, is not that a both young and low-income family has not accrued much in retirement wealth, because this is an unreasonable expectation on the grounds of age alone. The concern here is the low participation rate. While the top panel of exhibit 4 shows that, when looking just by age alone, the percentage of families holding a retirement account rises significantly from 40 percent for those under 35 to over 55 percent in the 3544 age bracket, the participation rate never approaches anywhere near 60 percent for families with heads that either lack a high school diploma, or in exhibit 5, are single, are nonwhite, or do not own a home.

Exhibit 5.
Percentage of Families Holding and Median Value of Select
Financial Assets by Family Characteristic, 2004

(in thousands of 2004 dollars)

Exhibit 5.  Percentage of Families Holding and Median Value of Select  Financial Assets by Family Characteristic, 2004. See text for explanation.

Exhibit 5.  Percentage of Families Holding and Median Value of Select  Financial Assets by Family Characteristic, 2004. See text for explanation.

Source: The Urban Institute. Data from Bucks et al. (2006) and Urban Institute tabulations using the 2004 Survey of Consumer Finances.

Portrait of a lowfinancial asset family. With regard to financial assets, a low-asset family is likely to have a checking or savings account with the relatively low median holding of around $600. The family would be unlikely to have a retirement account, such as an employer-sponsored pension plan or IRA or to hold any securities.

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