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Measuring Poverty: A New Approach
counts, bonds, stocks, automobiles, real property) that can be converted to cash to support current consumption. Also, some families receive lump-sums during a year (e.g., realized capital gains, gifts, inheritances) that could be used for consumption purposes. By definition, assets are stocks, and income is a flow, so adding the two is not appropriate. (Similarly, by definition, lump sums represent transfers of capital not income.) Also, income includes income flows from assets (interests, rents, dividends), as well as from earnings and transfers.
However, some analysts have argued that the resource definition for poverty measurement should add to income the values for asset holdings of at least some types. Thus, David and Fitzgerald (1987) propose a crisis definition that would include regular income plus the value of financial assets that are readily converted to cash (e.g., savings accounts).10 They argue that it is particularly important to include asset values for poverty measures that pertain to short periods (e.g., 1 or 4 months) because many people with short spells of low-income may not be in a crisis situation so long as they have assets on which to draw. In fact, the major public assistance programs that have short accounting periods typically limit the amount of assets that applicants can hold and still be eligible for benefits. For example, Aid to Families with Dependent Children (AFDC) and food stamps pay benefits to people who experienced an income drop as recently as a month ago only if their "countable" assets are below a certain limit.
The argument is less compelling to include asset values for poverty measures that pertain to periods of a year (like the current measure) or longer. If one takes a longer term view of poverty and with an income definition, a poor person is someone who has insufficient income from assets and other sources with which to support consumption at an adequate level over an indefinite period. If one instead adds assets in by some method and counts them as spendable, one is taking a short-term view because the assets can only ameliorate the poverty temporarily.
Methodological and Measurement Issues
There are several possible methods for implementing a crisis definition of resources, which adds the value of assets or lump sum amounts to income (see Ruggles, 1990:Chap. 7). (Under any of these methods, to avoid double counting, reported income from assets must first be subtracted from resources.) One approach is to use a simple cutoff, as in AFDC and other assistance programs: that is, to stipulate that families, by definition, are not poor if they have more than a certain level of assets. The limit in assistance programs is
They would exclude income from assets (e.g., interest) to avoid double counting.