Guest Blog Post: Assets Beget Assets

Editor’s note: This post is contributed by Melinda Lewis, Policy Director of the Assets and Education Initiative at the University of Kansas. This post previews an event on Friday, March 28th featuring Michael Sherraden and Asset Building Program founding director Ray Boshara. You will be able to watch the event live here beginning at 1 pm EDT.

In this year of the 50^th anniversary of President Johnson’s declaration of a War on Poverty, America is at a crossroads. More Americans than ever question the calculus of the American dream—that effort plus ability equate to real opportunity for economic advancement—while a growing polarization of wealth decimates the middle class—in size and in spirits. Working harder and ‘smarter’ than ever before, working Americans are nonetheless frustrated by declining economic rewards for their labor. Adding to the urgency surrounding the critical policy challenge of how to develop policy structures that can facilitate economic mobility for all is the realization that Americans today are buffeted by largely long-term trends, not short-term effects of the recent Great Recession. Global economic competition and wage earners’ marginalization in an increasingly technological market have weakened the bargaining position of most working Americans, even those who have sought to ensure their prosperity by investing considerably in advanced education. Indeed, while a college degree is still among the surest paths out of poverty, most Americans see higher education as more of an insurance policy against downward mobility, rather than a guaranteed path to economic security. This, too, adds to the growing alienation and loss of hope.
 
New analysis underscores the importance of assets in explaining the gaps between the ‘haves’ and ‘have nots’ in today’s U.S. economy. While work effort can, at best, only secure Americans’ standard of living in the modern economy, households need assets to advance economically. And, in ways that we are just beginning to understand, the level of assets with which one begins—initial asset stores—is significantly determinant of the power of subsequent income to generate additional assets. In other words, assets beget assets, despite what Americans like to tell ourselves about equality of opportunity and the irrelevance of one’s starting class position. Low-wealth households see less return on each additional dollar of initial assets, compared to households at higher wealth percentiles. For example, those at the 25^th wealth percentile experience a $0.35 return for every one dollar increase in net worth compared to $1.20 for those at the 50^th percentile and $1.81 for those at the 75^th percentile. In other words, households at the 75^th percentile enjoy over five times the return on asset holdings experienced by households at the 25^th percentile. Moreover, initial levels of assets are not only important for helping households accumulate larger amounts of assets, they also may be important for increasing the amount of household income available. For example, at the onset of the Great Recession, in 2007, for each one dollar increase in initial capital income  total household income increases by $1.22 for households at the 25^th percentile of capital income but increases by $5.26 at the 75^Th percentile. At the end of the Great Recession, 2011, it increases by $0.58 at the 25^th percentile and $1.29 at the 75^th percentile.

In a presentation and panel event at the Assets and Education Initiative at the University of Kansas on March 28^th, 2014, Dr. Michael Sherraden—founder of the Center for Social Development, intellectual author of the asset-based anti-poverty movement, and champion of pro-asset development policies—will outline a vision of asset-building structures to deliver wealth accumulation opportunities to all Americans. Critically, this conversation will explore the roots of the malaise afflicting working Americans today who sense, even if they cannot name, the unlikelihood of their ascent up the economic ladder, without a foundation of assets to help them climb. Dr. Sherraden and an esteemed panel, including Ray Boshara of the Federal Reserve Bank of St. Louis, Sarah Treuhaft of PolicyLink, and Chris Howard, author of The Hidden Welfare State will share evidence and analysis that clearly trace the link between economic mobility, household wellbeing, and the only policy lever capable of delivering them: asset building. Please join us, online or in person, to chart a policy vision up to the crucial challenge facing our nation: making the American dream live again.