Spotlight Exclusives

Poor Measurement: To Address Poverty, We Should Add Assets to the Equation, By Reid Cramer, Director, Asset Building Program, the New America Foundation

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The federal government bases its poverty measure on a formula that was established in the 1960s and has not been updated since. Many experts and elected officials alike have made repeated calls for the measure to be changed, especially in light of a changed economy that has altered substantially in the nearly half-century that has passed since the federal poverty measure was first set.

Spotlight on Poverty and Opportunity is pleased to host a series of commentaries entitled “Poor Measurement” to discuss this issue. The series brings together experts, advocates and policy makers to address how, why, and whether to update the federal poverty measure.

Previous commentaries in the series have included the following:

Building Economic Security and Reducing Poverty,” by Annette Case

What Will It Really Take to Move Individuals and Families out of Poverty in Ten Years?” by C. Nicole Mason

Changing How We Measure Poverty,” by Diana Pearce

Time for a Comprehensive New Poverty Measure,” by John Quinterno

Measuring Poverty in New York City,” by Mark Levitan

A Truly New Approach to Measuring Economic Inclusion,” by Shawn Fremstad

Poor Measurement,” by Rebecca M. Blank and Mark H. Greenberg

For most policymakers, it is never a good time to talk about poverty. When times are flush, their constituents are doing well. When recession hits, everyone is hurting. But as economic hardship continues to impact a greater number of families and communities, this may be the time to redouble our search for innovative and potentially effective ways to break the cycle of poverty.

To be sure, it will not be easy to elevate recognition of poverty in our midst. Part of the problem may be how we report it. The overall poverty rate is divorced from any specific national goal or public priority. When we learn that over 39 million people lived with incomes below the poverty threshold in 2008 or that 13.2 percent of the population was poor in that year, it is difficult to envision how government can be expected to solve the problem, and paradoxically, it becomes easier to ignore.

Upon closer inspection, it turns out that the poverty measure itself is part of the problem. Its limitations have been pointed out by academics for years. The National Research Council concluded in 1995 that the poverty line is out of date as an evaluation of contemporary living standards. It was initially calculated by considering the cost of food, but families at all income levels spend less today on food and more on housing, transportation, and child care. More glaring is the omission of accounting for regional differences in the cost of living, such as housing costs, which vary greatly throughout the country. The current standard for measuring income is equally anachronistic, using an account of pre-tax income that does not subtract payroll taxes, add near-cash benefits such as food stamps, or count tax refunds. These experts recommended an overhaul and proposed alternative measures that have yet to supplant the official measure.

But it has another fundamental problem. It misses a key component of economic security: access to assets. For those who work with poor families and in poor communities, it is common knowledge that poverty is not just about income. Poverty also entails a lack of access to opportunity, information, and resources. Income is not only a poor proxy for consumption; consumption at any particular time provides an inadequate indication of long-term hardship. Poverty is a problem in the United States not because it is merely an episodic condition but because it is persistent and intergenerational.

Yes, an alternative measure is required, but it would be most constructive if that revised measure was able to capture a household۪s access to resources over time. Families need income to support their daily sustenance, but they often draw upon a stock of resources in the form of savings, investments, or homeownership to achieve economic stability. An improved measure should include a consideration of assets.

Dealing with low or no income at any one moment in time is a challenge, but it is more debilitating when it is long term. Additionally, we know that social development plays out over an extended period of time and throughout the life cycle. Therefore, we need to consider the role that savings and assets play in helping families navigate their economic lives. To do so, we need to be able to track and measure the presence of savings and assets in particular households over time. Currently, there are only limited ways to do this, which hinders our understanding of the dynamics of poverty and the impact of policy efforts.

Crafting a better measure is possible, but we will need better data and new surveys that are capable of capturing family economic well-being over time. At a minimum, we need these to assess whether our interventions are working or not. Yet getting this date and defining a new poverty measure will require some political will. Still, it can be done. Mayor Bloomberg of New York City has recently added his high-profile voice to the growing chorus of scholars (some of whom are now at work in the Obama Administration) calling for a revised poverty measure.

One of the primary benefits of revisiting the poverty measure along these lines would be the ability to highlight important components of economic security that need to be addressed by policy. While past debates pitted asset-building strategies against those focused on mitigating immediate hardship, in the future it will be necessary to combine social insurance policies with ones that create long-term pathways to economic security and social development.

These interventions actually go hand-in-hand. Saving and assets are valuable because they can be deployed productively or tapped strategically to weather unexpected events. At the same time, we have a collective interest, made especially clear during a recession, to make sure children don۪t go hungry, families have housing stability, and no one in our prosperous society goes without basic necessities. This means we will need to continue to explore ways that policy can shore up the safety net at the same time as we keep an eye out for innovative asset-building programs that help families move up and out of poverty over the long haul.

Reid Cramer is Director of the Asset Building Program of the New America Foundation in Washington, D.C.

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