The coronavirus pandemic has sent huge swathes of the population into a state of financial precarity, but the vulnerability to such shocks is underlined by a recent study from Oregon State University, which found that an incredible 77% of low- to moderate-income households fall below the asset poverty threshold, which is defined as being unable to sustain even poverty-level status for three months if their income was cut off.

The researchers looked at asset poverty rates in both the US and Canada, and whereas the rate appears to have improved in Canada over the last 20 years, it’s worsened in the US.  Despite these contrasting fortunes, the analysis still finds that 62% of low- to -moderate-income Canadians also fall below the asset poverty threshold.

“The fact that the U.S. safety net is so connected to work, and then you have this huge shock to employment, you have a system that’s not prepared to handle such a big change to the employment system … It results concretely in family stress and strain, and then that strain and stress relates to negative outcomes for children and families,” the researchers say.

Vulnerable to shocks

The research explored the financial assets, such as stocks, rather than real assets, such as houses, because financial assets tend to be easier to cash in and call upon in an emergency.  It’s also important as previous data suggests that wealth inequality is more pronounced in the US than income inequality.

The target market for the research were low- to moderate-income households, who were defined as those in the bottom 50% of income distribution in both America and Canada between 1998 and 2016.

At the start of the research period, asset poverty in this group was 74% in Canada, and 67% in the US, but the two rates converged by 2005, before they diverged such that by 2016 it was just 62% in Canada and 77% in the US.

Political differences

The researchers highlight how Canada spends around twice as much as the US on financial assistance for families, with much of this help in the form of direct cash benefits rather than benefits in kind.  Indeed, some 96% of the target group received some form of assistance in Canada, versus just 41% in the US.

“What stands out there is, so few American families receive any type of transfers at all, compared to other countries, and small adjustments to an already minimal safety net was not related to asset poverty in this study,” the researchers say.

Many of the safety net programs offered in the US disincentivize saving because they are typically wrapped up in asset limits, so additional saving would prevent people from accessing the support.  It creates a poverty trap for those involved.

“If you have someone who’s low-income and they are working hard trying to save money but you’re telling them that they’re going to lose benefits if they save over some given threshold, that’s a disincentive to accumulate wealth,” the researchers say.

Perhaps unsurprisingly, such a trap is particularly harmful for people of color, who have faced decades of discriminatory laws and policies that have prevented them from buying homes or securing well-paid jobs.

“This is the story of COVID, as I see it—it’s just exposing these existing inequalities, and the people who are most vulnerable going into the crisis are magnified in their vulnerability getting through it,” the authors conclude.