Association for Public Policy Analysis & Management

Asset accumulation of higher-income families is encouraged through tax incentives and promotion of homeownership, among other institutional structures. Low-income families, however, are often discouraged from saving and accumulating wealth, as many means-tested programs restrict eligibility to households with incomes and assets below certain thresholds. These diverging savings structures have large implications for patterns of wealth accumulation and inequality in America. Recently, federal and state-level program rules regarding asset limits for Temporary Assistance for Needy Families (TANF) and the Supplemental Nutrition Assistance Program (SNAP) have changed. Most policy changes have relaxed asset limits in an attempt to encourage savings among low-income families, though some states have recently reinstated their asset limits (e.g. Idaho and Michigan) (GAO, 2012). Supporters of limitations on asset holdings argue that without them, program participants can take advantage of the system and proliferate program growth. Opponents maintain that asset limits unintentionally discourage low-income families from saving. Despite the dramatic policy changes in this area in the last decade, very little is known about how asset limits actually impact financial decision-making.

We examine the impact of asset limits on TANF and SNAP on program participation and financial behaviors by combining three sources of data. Information on program participation and liquid and capital assets, such as cars and homes, comes from the Survey on Income and Program Participation (SIPP). To construct state policy asset limit variables – including both liquid and vehicle assets – we use two other key data sources. The Welfare Rules Databook on State Policies, published by the Urban Institute, compiles data on the policy changes in TANF rules. The United States Department of Agriculture’s (USDA) SNAP Policy Database provides data on monthly changes in SNAP asset limits.

We first examine whether families change their financial behaviors for the purpose of participating in these programs in response to state asset limits. Second, we study whether, conditional on TANF and SNAP participation, the amounts and type of assets held change in response to state asset limits. To answer these questions, we use a difference-in-differences approach to compare families and households who did not experience a state-level asset limit change compared to families and households who did. Some of the outcome variables of interest include whether families had a bank account, whether they had a bank account with at least $500, whether they owned a car and whether they own a car with at least $1,000 in equity. We will control for other factors that can affect asset holdings, including family-level characteristics, economic conditions (e.g. unemployment rate), unobservable state characteristics (e.g. public sentiment towards TANF and SNAP), and secular changes that affect all families similarly.

 Results from this study will provide insights to policymakers making decisions surrounding whether to have asset limits and if so, the optimal level. The results will also contribute to the literature on the financial behaviors of low-income families.