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Measuring Poverty: A New Approach
ered in some way in determining their poverty status. Financial assets, such as savings accounts and stocks, can often be converted to cash to tide families over a period of low-income. Property assets (e.g., houses, land, cars, household furnishings) can also be converted to cash, although often not as readily. Assistance programs such as AFDC and food stamps allow families to have their own home, furnishings, and a cheap car, but otherwise place a low limit on the assets they can hold and still be eligible for benefits. The reason for the asset limit is the programs' short accounting periods: they allow families to qualify for benefits on the basis of having low-income for a period as short as 1 or 2 months, provided that the families have few or no financial assets on which they can draw.
For purposes of poverty measurement, however, for which the accounting period is a year, it does not seem sensible to add asset values to nonasset income. In most cases, asset values will only raise income-poor people above the poverty line for short periods, after which they are still poor. It is more appropriate, instead, to define resources as disposable income from all sources, including any income from assets, such as interest or rents (although very few income-poor people have financial assets in any case; see Chapter 4). However, we recognize that for some purposes it may be desirable to have companion measures that take account of some types of assets. Thus, measures for shorter periods (e.g., 4 months) may be more useful than annual measures to evaluate how effectively assistance programs with short accounting periods target benefits to needy people. For consistency with program rules, short-term poverty measures will need to include financial asset values.
What difference would it make to poverty statistics to adopt the proposed measure in place of the current measure? Developing a few concrete examples of prototypical families and their poverty status under the two measures can help illustrate the differences between them. Figure 1-3 shows four examples of single-parent families with two children who, under our proposal, have different poverty thresholds—relative to the official threshold—depending on where they live. These examples are somewhat contrived, but they illustrate the potential effects of adopting the proposed measure for families with different sources of income in different areas of the country.
The family on welfare in a big New England city, Case 1, is poor under the current measure and is also poor under the proposed measure: adding the value of in-kind benefits to the family's cash welfare income does not raise that income above either the official threshold or the adjusted threshold (which is higher due to the cost of housing). In contrast, the family on welfare in a rural area of the upper Midwest, Case 2, is poor under the current measure but is not poor under the proposed measure: in this case, adding the value of in-