Public assistance programs provide benefits only to those with too few resources to support themselves. Generally, such programs consider both assets and income in determining eligibility for benefits and payment amounts. The rationale for this approach is that the government should not have to support people who can take care of themselves by converting bank accounts, stock holdings, vehicles, or retirement accounts into cash or collateral. As such, assets are considered "means" that should allow families to avoid destitution. Assistance programs typically do not count assets below some low threshold, allowing families some savings or a car that may be necessary for work. However, families with assets above the threshold may be ineligible if they fail the so-called "asset tests" designed to target payments to those most in need.

Asset tests can create a disincentive to save among families who might subsequently qualify for benefits. Sometimes one additional dollar of assets can result in the loss of thousands of dollars per year in public assistance benefits. This raises the question: Do asset tests actually discourage savings and reduce asset accumulation among families who might qualify for public assistance benefits? At least one influential paper says yes. Hubbard, Skinner, and Zeldes, in their 1995 article, interpret the low levels of wealth accumulation among low-income households as a rational, utility-maximizing response to asset-based, means-tested welfare programs.

This brief describes current asset tests and discusses their role in reducing asset building by low-income families. We identify the target population subject to asset tests, describe the various asset tests, review background data and previous research, consider strategies for meeting a mix of objectives, and point to the need for additional research and policy analysis.

This policy brief describes the steps that both the federal government and state governments can take to reduce an important barrier to retirement saving among low-income families: the asset tests in means-tested benefit programs.  A growing body of evidence suggests that low-income families will contribute to retirement accounts if they are presented with effective and transparent incentives to do so and have easy access to a savings vehicle.  The asset tests associated with means-tested benefit programs, however, often penalize those who do save, undermining the broader goal of encouraging retirement saving.  Furthermore, the rules applied under these tests to retirement accounts are confusing and often treat 401(k) accounts and IRAs in a seemingly arbitrary manner.

This paper examines whether AFDC/TANF asset tests affect the asset holdings of low-educated
single mothers, exploiting variation in asset limits and exemptions across states and over time.
There are important reasons to examine vehicle assets in this context. For example, vehicles
make up a very significant share of total wealth for poor families, and the variation in vehicle
exemptions over time and across states far exceeds the variation in asset limits. Consistent with
other recent research, I find little evidence that asset limits have an effect on the amount of
liquid assets that single mothers hold. However, I find evidence that vehicle exemptions do
have an important effect on vehicle assets. The findings suggest that moving from a $1500
vehicle exemption to a full vehicle exemption increases the probability of owning a car by 20
percentage points for low-educated single mothers relative to a comparison group. Also, the
results indicate that single mothers are not substituting vehicle equity for liquid assets in
response to more relaxed restrictions on vehicles.

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Walmart wants to open a bank.

"In a concession to opponents, Wal-Mart said yesterday that it would no longer seek an exemption from a law requiring its proposed bank to invest in low-income communities, which could relieve some criticism."