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Measuring Poverty: A New Approach
generally in the range of $1,000-$3,000 for financial assets, and participants are usually also allowed to have a home, furnishings, and an inexpensive car. These limits may be too low for a poverty measure that is calculated on a basis longer than the 1-month accounting period used in such programs as AFDC.
Another approach is to convert assets to an annuity and add the annuity value to income.11 This approach is appealing for the elderly poor who are out of the work force and hence have little prospect of moving out of poverty. It makes little sense to assume that they should use up their assets all at once, rather than stretching out the amount that they could realize by an annuity. However, the annuitization approach may understate the potential contribution of assets for other people. The contrasting approach is to assume that people will draw on the full value of their assets; however, this method may overstate the contribution of assets by assuming their easy convertibility to cash.
In addition to methodological issues in valuing assets, there are substantial estimation problems. It is difficult to obtain accurate reporting of asset values (and asset incomes) in household surveys. The March CPS asks about savings interest, dividends, and net rental income, but not about the underlying asset values, which would have to be imputed by using an assumed rate of return. Moreover, nonresponse rates to the asset income questions in the March CPS are high. SIPP obtains extensive information on both asset income and asset holdings; for most types of assets, income amounts are ascertained every 4 months and value amounts once a year. Nonresponse rates to yes-no questions in SIPP on asset ownership are low, but nonresponse rates to the income and value questions are high (although not as high as in some other surveys).12
Some work has been done by the Census Bureau and others to evaluate the effect of including the value of one or more types of assets in the resource definition for measuring poverty. David and Fitzgerald (1987: Table 4) compared a crisis measure of poverty to the current measure, using data from the 1984 SIPP panel: the crisis measure added to money income the capitalized value of reported interest from the prior interview. They assumed a 6 percent
Moon (1977) used the annuitization approach (developed originally by Weisbrod and Hansen, 1968) in measuring the economic well-being of the elderly poor.
Recently, the Health and Retirement Study, a panel survey of people ages 51 to 61, achieved more complete reporting of asset values by a technique called "bracketing," in which holders of an asset who don't know or refuse to provide a value are asked if the value is above a certain amount; if yes, whether it is above another (higher) amount, and so on. High rates of response are obtained by this method, although the response categories are very broad—for example, less than $1,000, $1,000 to $10,000, $10,000 to $50,000, $50,000 or more (Juster and Suzman, 1993:16-20).