Reentering Asset Poverty after an Exit: Evidence from the PSID

Abstract

In order to be successful at improving household’s financial self‐sufficiency and stability, asset‐building policies must be designed to prevent households from falling back into asset poverty once they exit it. This paper uses the Panel Study of Income Dynamics data from 1994 to 2007 to analyze the influence of life events, demographics and financial behaviors on the duration out of asset poverty. We find evidence that suggests there are structural barriers to asset acquisition. Asset accumulation at levels equal to nine months worth of income at the income poverty level or greater is important for improving a family’s odds of permanently escaping asset poverty. Additionally, minimizing debt and diversifying the asset portfolio to include more productive assets are important for maintaining assets. This paper provides some insights on policies to help individuals more successfully transition out of asset poverty.