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

11/01/2007

Nonfinancial tangible asset holdings include vehicles, equity in residential and nonresidential property, and equity in privately held businesses, artwork, jewelry, precious metals and stones, antiques, and collectibles. In this section we first look at ownership of these nonfinancial tangible assets by asset type: vehicle, home, and other. We then discuss equity values in each type of nonfinancial tangible asset. Financial assets are described separately above.

While vehicles are the most commonly held nonfinancial asset, only 65 percent of bottom income quintile families own one compared with 95 percent of fifth income quintile families, and 86 percent of families overall. This low holding rate in the bottom quintile stands out given that 85 percent of families in the second quintile own a vehicle. Differences in car ownership rates are also large when examined by educational attainment: 70 percent of families with less than a high school education own a vehicle compared with 91 percent of college graduates. Overall, those who are single, nonwhite, or rent have markedly lower vehicle ownership rates than those who are married or cohabiting, white, or own a home. (The top panels of exhibits 6 and 7 show the holding rates while the bottom panels show the median asset value of the vehicles held.)

Exhibit 6.
Percentage of Families Holding and Median Value of Select
Non-Financial Assets by Family Characteristic, 2004

(in thousands of 2004 dollars)

Exhibit 6.  Percentage of Families Holding and Median Value of Select Non-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

Exhibit 7.
Percentage of Families Holding and Median Values of Select
Non-Financial Assets by Family Characteristic, 2004

(in thousands of 2004 dollars)

Exhibit 7.  Percentage of Families Holding and Median Values of Select Non-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.

Not surprisingly, the homeownership rate for bottom income quintile families is less than the national homeownership rate. While the national homeownership rate was 68.3 percent in 2003,[4] only 40 percent of bottom quintile families own a home, compared with 57 percent of second quintile families and 93 percent of fifth quintile families. However, if we use less education as a proxy for low-income, about 56 percent of families headed by someone without a high school diploma own a home, which is noticeably higher than homeownership in the bottom quintile classifier. Ideally these measures of the relationship between homeownership and income and education would account for age patterns. Only 42 percent of families headed by persons under age 35 own a home compared with 79 percent of families headed by persons ages 5564. Do low-education families not own a home because they are younger? The net worth findings, which do account for age and are discussed below, suggest that there is a relationship between educational attainment and net worth. The homeownership rates for nonwhites or Hispanics are also lower than for the population in general. About 51 percent of families headed by nonwhites or Hispanics own a home, compared with 76 percent of white non-Hispanics.

Similar to financial assets, a wide disparity in the value of nonfinancial assets held is evident across income groups. The median value of nonfinancial assets for families holding any such asset was just $22,400 for bottom quintile families, compared with $131,200 for third quintile families and $466,500 for fifth quintile families (exhibit 6 and Appendix exhibit 2). The distribution of specific nonfinancial assets like homes and business equity follows a similar trend, with fifth quintile families reporting median values many, many times greater than first and second quintile families.

Median values of vehicles, although dwarfed by home and business median values, rise with family income and rise slightly with the age and education of the family head, and are higher for married or cohabiting couples, homeowners, and whites or non-Hispanics (exhibits 6 and 7). Only when looking by income group are there substantial increases in median values. There is some debate regarding whether vehicles actually constitute an asset due to the fact that vehicles depreciate in value over time. Because of this, families that lease rather than own vehicles may not be at a disadvantage.

While median home values do increase fairly significantly with age of the family head (from $135,000 for families headed by persons under 35 to $200,000 for families headed by persons 5564), the larger contrasts are by education of the family head ($75,000 for those with no diploma compared with $240,000 for college graduates), and income ($70,000 for the bottom quintile compared with $337,500 for the fifth quintile, in exhibits 6, 7, and Appendix exhibit 2). Marital status and race also show marked effects: $120,000 median home value for a family that is single-headed compared with $185,000 for a married or cohabiting family; and $130,000 for a family headed by someone nonwhite or Hispanic versus $165,000 for white non-Hispanic.

Due to low business holding rates across the population  and low sample sizes in the Survey of Consumer Finances (SCF)  observed patterns in the distribution of median business equity by classifier can sometimes be a fluke of small numbers and so should be regarded with caution. In the 2004 SCF, only 3.7 percent of those families in the bottom income quintile had any business equity (median value of $30,000) while just 25.4 percent of families in the fifth quintile owned a business (median value of $225,000). By age, 6.9 percent of those under 35 held business equity at a median value of $50,000, compared with a peak of 15.8 percent of those age 5564 and a median value of $190,900. While 4.2 percent of families headed by a person who did not complete high school owned a business ($55,000 median value), 15.6 percent of families headed by college graduates owned a business ($150,000 median value). Family heads with some college education also held business equity of $150,000, although the holding rate of 10.7 percent is lower. The likelihood and median values of business equity for single versus married or cohabiting (6.0 percent and $75,000 compared with 15.4 percent and $135,000) and nonwhite or Hispanic versus white or non-Hispanic (5.9 percent and $66,700 compared with 13.6 percent and $135,000) were very similar.

Portrait of a low-nonfinancial asset family. Overall, with respect to nonfinancial assets, a low-asset family is likely to own a car (worth between $7,000 and $10,000), but not a home, a business, or collectibles like artwork or jewelry. Again, this family is likely headed by a person who is single, nonwhite or Hispanic, younger, and less educated  but the disparities are less pronounced than with financial assets.

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