Data Definitions and Limitations
With any research endeavor, the data are never completely sufficient. This is no less true for the State Asset Development Report Card. Most of the data were gathered from publicly available sources, such as the U.S. Census Bureau and nonprofit research and policy organizations. Because CFED is driven by what needs to be known, not just by what is readily known, about assets, new data were commissioned for this Report Card, and, in some instances, proxies—indirect means of getting answers to important questions—were used. In general, these situations arose because no one previously had asked about or collected data on these issues at the state level.
What’s an asset?
“Assets” is a business accounting term that refers to anything that has money value. In this sense, income and assets are quite similar—each reflecting a different way of representing financial resources. Yet, as it is most commonly used, assets refer to the accumulation of money, wealth resources, or property (“stocks”) rather than income spent on consumption (“flows”). Even in this sense, the interpretation of assets can be quite broad including everything from financial assets and human capital to social capital and environmental assets.
For simplicity sake, and also because one of the primary objectives in developing the Report Card is to measure the performance of states in helping individuals and families build assets as a tool for achieving economic self-sufficiency, a more traditional, strictly financial definition of assets is used. Thus, the Report Card includes as assets either financial assets or assets that can be quickly converted into financial assets and that typically appreciate in value. This is similar to Edward Wolff’s concept of “fungible wealth,” meaning that which is saleable and therefore has current market value. Even this definition can be broad and encompasses a range of assets including home equity, stocks and fund shares, vehicles, business capital, checking accounts, other interest-bearing accounts, and retirement savings. Based on our definition, the Report Card does not include certain assets, such as natural capital and social capital, which have important economic value, but for which it is difficult to assign a market value.
New State-by-State Data on Assets
Data on assets and wealth have never been collected as thoroughly as data on income. In fact, until now, data have never been available on assets or wealth at the state level. The Survey of Consumer Finances, which is released annually by the Federal Reserve Board and is one of the two main sources of data on wealth, presents net worth indicators (mean and median) in four regions and in nine divisions in the United States, but not state-by-state. The other main source of data on wealth, the Survey of Income and Program Participation (SIPP), released periodically by the Census Bureau, also has detailed data on household asset ownership but does not provide any state-level data or estimates. To shed light on important aspects of asset accumulation, CFED commissioned researchers Robert and Jon Haveman to generate estimates of household net worth, asset inequality, and asset poverty at the state level. The data generated by the Havemans include the following measures used in the Report Card:
- Mean net worth
- Asset inequality by race
- Asset inequality by gender
- Asset poverty
- Asset poverty by race
- Asset poverty by gender
- Households with zero net worth
- Households with checking account
- Households with savings account
These indicators were all produced using data collected for the SIPP. However, as the weighting scheme in the SIPP has been developed to provide a sample that is representative of demographics at the national level and not at the state level, the Havemans used the data from Current Population Surveys over a three-year period (1998-2000) to rescale the weights. The rescaling was designed to make the sample of observations present in the SIPP data set consistent with the Current Population Surveys on the basis of race, gender, and broad income status.
Timeliness of the Data
Because of the lag between the time data are gathered and when they are available for use, the data in this Report Card provide a snapshot of the recent past. Although the most current data available for all measures have been utilized, in some cases the data were collected as far back as the mid-1990s. Moreover, the data do not reflect the very recent past, including the impacts of the events of September 11th and the recent downturn in U.S. financial markets.
What’s Not Included
A number of important issues or factors related to asset building for low-income households are not included in the Report Card because the data are not available or because these issues were beyond the scope of the Report Card.
Retirement Capital
Retirement savings is one of the most important components of wealth for most Americans, with pension accounts making up the fourth largest share of total household wealth in 1998. Yet, while the number of wage and salary workers participating in a pension plan at work increased during the 1990s, the Employee Benefits Research Institute reports that only 52.3% of workers participated in a pension plan in 2000. Moreover, workers not participating in an employer-sponsored pension plan are more likely to be single, female, less educated, part-time employees, or non-white. Despite the importance of retirement savings, data at the state level on employer-provided pension coverage or private savings in the form of Individual Retirement Accounts or Keogh accounts are nonexistent. However, this lack of data on an important wealth component is mitigated by two factors. First, research shows that retirement savings is not as important to most poor households because they tend to be relatively young. In addition, when these households reach retirement, Social Security replaces a very high percentage of lifetime earnings, and Medicare provides relatively generous health benefits. Third, federal regulations under the Employee Retirement and Income Security Act preempt state policy on retirement savings, making the state policy role less important.
Measures Other than Health Insurance Under Asset Protection Outcomes
As noted earlier, families protect their assets in a number of ways, from health insurance and car insurance to homeowners’ insurance to life insurance. While this range of asset protection mechanisms is addressed in the Asset Policy Index, the total lack of data on life and homeowners’ insurance meant that only health insurance could be included in the asset protection category of the Asset Outcomes Index.
Wealth Data Among Different Minority Populations
As noted above, asset inequality is especially pronounced when comparing racial minorities to the rest of the population. Yet, while racial minorities, overall, tend to have significantly lower levels of wealth than white households, the level of asset accumulation among particular racial minorities, such as African Americans, Hispanics, and Asian Americans, also varies. Moreover, as demographics shift in the United States, the relative wealth position of different racial minorities is also changing.
For example, new Census data shows that, after years as the leader in minority business ownership, African Americans now rank third behind Hispanics and Asian Americans. Although these differences among minority populations are important, data that would illuminate this issue at the state level are not available. Thus, the indicators used in the Report Card that provide breakdowns of various measures of assets “by race” are simply ratios of white to non-white assets.
Impact of Differing State Legal Climates
Beyond policies and regulations that may be in place in a state, the actual legal code and how it is interpreted in a particular state can have a significant impact on asset accumulation and protection for low-income families. Among the state laws that have an impact on assets are the treatment of a primary residence in the case of bankruptcy. Some states put no limit on the exemption for a primary residence when filing for bankruptcy, while others allow no homestead exemption. In addition, since unpaid medical costs are a major cause of bankruptcy, the extent of a patient’s right to sue a malefactor, doctors, and/or hospitals is also a significant factor in holding onto assets. While these factors can play an important role in asset accumulation and protection, their strictly legal nature was somewhat outside the scope of the Report Card.
