The downside of asset limits


When it comes to economic support programs for people in poverty, every legislative session brings a fresh debate over who “deserves” assistance and who doesn’t. One popular point of contention is that of asset limits—how much we account for a person’s possessions, and not just income, when it comes to determining need. For instance, what if someone is unemployed but has a car, house, or 401(1)k? Are they “poor” enough to qualify for government assistance?

At the moment, Congress is debating this very question as it haggles over the farm bill, because the farm bill includes the Supplemental Nutrition Assistance Program (SNAP, formerly known as food stamps). For the time being SNAP eligibility does not consider assets, only income, but some lawmakers want to change that. While this may seem practical on the surface, asset limits sometimes harm more than they help. Here are some reasons why:

Asset limits create administrative hassle and cost. Applicants have to show proof of their assets: if they own a car, how much is that car worth? What if a family is underwater on their mortgage—is their home truly an asset? Counties, who administer most assistance programs, have to collect, evaluate, enter, and verify all of this extra information. County governments, which are already strapped for resources, will have to deal with this mountain of paperwork.

Asset limits encourage shortsighted financial decisions. For instance, if retirement account is considered an asset, an applicant might be required to spend it down before receiving assistance. But if that applicant is only 50 years old, what happens when they’re 75 and their retirement savings have been depleted? What if an applicant is forced to trade their reliable, safe car for one whose value falls below the asset limit, but breaks down on the way to work?

Asset limits impair stability. Low-income families often find that asset limits prevent them from saving up enough to weather future financial difficulties, meaning that they are constantly on the brink of needing public assistance again. What may be a temporary need due to illness or unemployment can force someone into sabotaging decades of future stability.

Asset limits discourage people from applying for the supports they need. Whether it’s because of the work required to document all of their assets, or because their savings account is $100 over the limit, people who can benefit from assistance are less likely to seek it out. This is concerning because providing assistance is usually less costly to the community than dealing with the aftermath of poverty. SNAP, in particular, provides people with improved access to nutritious food. When that is lost, we pay for in terms of increased obesity, more seniors in nursing homes, and other health-care costs. When people hesitate to apply for medical insurance, we pay for their unreimbursed ER visits.

Of course, asset limits should (and do) vary by assistance program, and there can be such a thing as reasonable boundaries. But for programs like SNAP that lower public costs, generate local economic activity, and serve people in a limited, specific way (usually for a short period of time), asset limits may cost us more than they save. Sometimes what seems like a good idea on paper doesn’t work so well in practice—and this is one of those times.