Association for Public Policy Analysis & Management

Valid assessment of the effects of social programs on deprivation hinges upon accurate measurement of poverty. Poverty measures are also crucial for identifying the disadvantaged, determining program eligibility, and tracking changes over time in the prevalence and depth of poverty. There is, however, a longstanding debate on how to measure poverty and identify who is poor. Central to this debate is how to define the resources that are available to families to meet their basic needs. Most measures of poverty, including the U.S. official poverty measure (OPM), consider a family to be in poverty if the family’s income is below a threshold that reflects a socially acceptable minimum income. The U.S. government introduced the supplemental poverty measure (SPM) in 2011 to address many of the documented shortcomings of the OPM. An important difference between the OPM and the SPM is in their definition of resources. Whereas OPM resources are defined as pre-tax cash income, the SPM additionally considers tax credits and the value of some in-kind benefits, and excludes taxes, medical expenses, child support payments and child care expenses in its definition of resources. Although the SPM is widely considered to be superior to the OPM, there are concerns that both income-based measures do not adequately capture the standard of living of households. For instance, the measures do not assess the burden households currently face due to extraordinary or unexpected expenses, or adequacy to meet such expenses in future. Two alternative definitions of resources—income augmented with the value of asset holdings and current consumption—are therefore appealing because they are conceptually closer to actual levels of material wellbeing than income.

We advance the debate on poverty measurement by examining whether incorporating assets in poverty measures improves identification of people who are poor. We use data on income, expenditures, and assets from a representative survey of New Yorkers (N=1,280) to study how the inclusion of assets in the definition of household resources changes who is considered poor by comparing the prevalence of material hardship and other measures of wellbeing between people classified as poor using the Official (OPM), the Supplemental (SPM), and three other poverty measures: asset-augmented OPM; asset-augmented SPM; and a consumption-based measure. The indicators of disadvantage we examine capture different domains of wellbeing including material hardship, financial insecurity, health, and neighborhood conditions.

We find that augmenting OPM and SPM using net worth adds to the OPM and SPM poverty rolls people with poorer general and mental health, more financial insecurity, more material hardships, lower life satisfaction, and poorer neighborhood conditions. The consumption-based measure has the worst performance of the five measures examined.

These results indicate that including assets in the definition of household resources will improve the accuracy of poverty measurement. The results also suggest that assets allow households to minimize material deprivations or the effects of deprivations on wellbeing, and should be a component of efforts to understand levels and trends of poverty.