Asset Accumulation and Housing Cost Burden: Pathways to (Not) Saving

Abstract

Asset accumulation is especially challenging for low- and moderate-income households, which often face fixed costs in their budgets that limit their ability to save. Key fixed costs include expenses associated with housing, such as rent, mortgage, taxes, and utilities. In 2011, 64% of households making $15,000–29,999 were cost-burdened (spent 30% or more of their income on housing). Data were collected in 2007 at two sites using a mixed-methods approach. A sample of 175 households were examined to determine how certain low- and moderate-income households with varying levels of cost burden managed to build savings and why others struggled with the same goal. Households with savings above the sample median of $112 saved an average of $2,304 (with a median of $803). Households with savings below the group's median had an average of $13 in savings, with a median of zero. Barriers to saving experienced by our asset-challenged households include unpredicted shocks, low incomes, unemployment and chronic sickness, large debt, multiple dependents, and prioritizing human capital investments and consumption over saving. Pathways to savings include coresidence, sharing business profits based on need, and financial assistance without obligation of repayment. Other pathways include financial literacy about budgets, savings, and other investments.

Keywords::

• asset accumulation
• housing cost burden
• saving

Acknowledgments

The authors thank Libin Zhang, Merin Thomas, and Zachary Rickerman for their work as research assistants. The first author also thanks the National Center for Institutional Diversity at the University of Michigan for the fellowship that provided time to work on this manuscript. This work was supported by a grant from the Ford Foundation (1060-0161).

Notes

^1. The Flats community is the black community where Stack did her research. It is located in the Midwest. The name is a pseudonym.

^2. A qualifying child is a relative (e.g., son, daughter, stepchild, eligible foster child, or a descendant of any of them) who lives for more than half the year with the person filing for the credit and is less than 19 years of age or a full-time college student. (For additional information, see EITC Questions and Answersat http://www.irs.gov/Individuals/EITC,-Earned-Income-Tax-Credit,-Questions-and-Answers.)

^3. The survey was similar to the one used by Smeeding, Phillips, and O'Connor (2000) but was designed in collaboration with the Boston mayor's office's EITC Campaign, which administers an annual survey of this kind at all Boston nonprofit tax-preparation sites.

Additional information

Notes on contributors

Ruby Mendenhall

Ruby Mendenhall is an associate professor in the Departments of Sociology, African American Studies, and Urban and Regional Planning at the University of Illinois at Urbana-Champaign. Her research focuses on issues of social inequality over the life course and the roles of public policy and individuals' agency in facilitating social mobility. She has written about the Gautreaux housing mobility program, the political economy of Black housing, Black families' agency over three generations, racial microaggressions, and the EITC.

Karen Z. Kramer

Karen Z. Kramer is a visiting assistant professor at the Department of Human and Community Development at the University of Illinois at Urbana-Champaign. She studies nontraditional family structures with a special interest in stay-at-home-father families and single-parent families. In her research, she examines the relations among financial inequalities, gender role perceptions, and household division of labor. Specifically, her research examines the conditions that allow an exchange of traditional gender roles between spouses.

Ilana R. Akresh

Ilana R. Akresh is an associate professor in the Department of Sociology at the University of Illinois at Urbana-Champaign. Her research focuses on various aspects of immigrant incorporation in the United States. Among contemporary groups, she has studied labor-market outcomes, such as occupational mobility and earnings growth, as well as health outcomes, such as health selection, obesity, and dietary change.