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Policy Brief: Asset-Based Policy in South Korea

Kim, Y. ., Zou, L., Weon, S.Y., & Sherraden, M. (2016). Asset-Based Policy in South Korea (CSD Publication No. No.15-48). Center for Social Development, Washington University in St. Louis.

Please see the link below:

http://csd.wustl.edu/Publications/Documents/PB15-48.pdf

 

Towards a measure of perceived financial capability part 2

I’ve developed a new way to visualize the results from one of our analyses from the perceived financial capability paper. In the previous post, I plotted the standardized score on the y axis and age groups across the x axis. Then perceived financial capability (a.k.a. subjective knowledge) and objective knowledge are plotted as separate lines. As an alternative we position the scores on x and y axes and plot the age groups as factors in the graph. The resulting display implies a correlation indicated with a 45-degree line. The deviation from the straight line – above or below – indicates the extent of over estimation and under estimation of financial knowledge by age group. By showing distance from the straight line we see clearly that individuals over 60 yrs of age overestimate their financial knowledge. I think the plot roughly meets the criteria established by Tufte (2001). I am curious what others think about the pros and cons of these two graphical displays.

Visualization excellence

  • Consists of complex ideas communicated with clarity, precision, and efficiency;
  • Is that which gives to the viewer the greatest number of ideas in the shortest time with the least ink in the smallest space;
  • Is nearly always multivariate;
  • Requires telling the truth about the data.

finknowledge_fincapability

Tufte, E. (2001). The visual display of quantitative information (2nd ed.). Cheshire, CT: Graphics press.

Towards a measure of perceived financial capability

 

There is a growing interest in understanding the psychological and cognitive components that affect financial decisions. With factor analysis we produce a single measure of perceived financial capability from five items in the 2009 Canadian Survey of Financial Capability (N = 15,519). After adjusting the measure for the influence of income, we find through bivariate analysis and multiple regression that younger individuals and females have low levels of perceived financial capability. Results indicate that perceived financial capability is conceptually distinct from objective financial knowledge. Approximately 65% of the correlation between perceived financial capability and financial knowledge was unexplained by the covariates. This Figure shows how financial capability and financial knowledge scores (both standardized) vary across the life cycle. Between ages 25 and 55 there is a pattern of under-estimation. After age 60 people tend to overestimate their ability to manage finances. Understanding perceived financial capability is but one component of the broader concept of comprehensive financial capability that also includes objective knowledge and the opportunity to act.

Graph_coef_fcapoabyage_2

New findings on asset poverty in Canada and developments on asset poverty measurement

by David W. Rothwell and Yunju Nam

Asset poverty

The most common method of economic poverty measurement requires defining of a minimal level of basic needs and economic resources. Economic poverty can be measured using income, consumption or wealth; subjective or objective criteria; multiple or single dimensions; and, from relative and absolute perspectives. In advanced economies, the predominate method for understanding economic poverty relies on annual household income as an indicator of command over resources. There are disagreements over methods to understand income poverty (e.g., see the Institute for Research on Poverty’s overview here). The U.S. poverty line is an absolute measure. Relative measures are used for international comparison.

In the 1980s and early 1990s scholars began challenging the reliance on income to understand household well-being. They argued that saving and asset accumulation function as more than stored income to be used for future consumption (seminal works by Oliver and Shapiro; Sherraden). According to Sherraden, when people accumulate assets, they think and behave differently; and the world responds to them differently. Assets function not as a flow but as a stock and are more permanent. Following these ideas, economic deprivation, i.e., poverty, can be measured using assets instead of income. Studies of asset poverty complement and contrast our understanding of the poverty condition.

Economists Robert Haveman and Edward Wolff considered a household or person asset poor if their access to wealth-type resources is insufficient to meet basic needs for some predefined period of time. Wealth-type resources usually involves financial assets or net worth; basic needs can be approximated with the income poverty threshold; and, period of time has usually been set at three months. Therefore, a person or household is considered asset poor if their asset resources fall below one-fourth of the official income poverty line. Concretely, assuming the annual income poverty threshold for a family of four is $32,000, the household would be considered asset poor if owned assets were less than $8,000.

Asset poverty in Canada

Recently, we estimated the first known asset poverty measures in Canada using the 1999 and 2005 Survey of Financial Security. We produced asset poverty rates based on (1) both financial assets and net worth, (2) the Canadian Low Income Cutoff as the threshold of basic needs and (3) three months as the period time. In the paper we reported the national asset poverty rates to be 53% based on financial assets and 34% based on net worth. Below we highlight key findings and contextualize them with US asset poverty findings.

Asset poverty is closely related to age. Figure 1 shows how the rate of financial asset poverty decreases with age. The line represents the rate of asset poverty across the life course. The shaded area reveals the uncertainty around the given asset poverty estimate. It is well known that younger people have struggled in the recovery from the Recession. This finding suggests a need for social policy targetted at younger households.

unnamed-chunk-1

Joint income and asset poverty

When the joint distribution of poverty based on income and assets is considered we were able to identify three sub-populations: (1) 14% of households were joint income and asset poor, (2) 3% of households were income poor but asset non-poor, and (3) 40% of households were income non-poor but asset poor. The third group reveals that a large segment of the Canadian population has sufficient income to be non-poor but lacks access to assets to survive for three months at the low income threshold. Future policy efforts will play a role in reducing or reinforcing this economic vulnerability.

Comparison with U.S. asset poverty

Differences in measurements and survey design make cross-country comparisons difficult. (For example, using 2001 data, Haveman and Wolff reported that 25% of U.S. households were poor based on net worth compared to the Canadian estimate of 34%. Using financial assets, the disparity was greater: 53% in Canada compared to 38% in the U.S.) It is better to examine systematic cross-country data. Brandolini and colleagues used data from the Luxembourg Wealth Study (years 1999-2002) to compare the asset poverty rates in several OECD countries. Using 50 percent of the median income as the income threshold, they reported that Canada had the highest financial asset poverty rates at 56.5 followed by the US (52.6).

It is perhaps more useful to examine over representation among the asset poor. The most recent CFED scorecard, showed the 2011 liquid asset poverty in the US was 43.5% and these rates were analyzed separately based on race and family structure. The rate of white households compared to households of color was 34.7 to 60.6. The rate of asset poverty among single parent households is nearly double that of 2 parent households (1.94). The analysis showed that 17% of Americans are in extreme asset poverty, i.e., they have negative or zero net worth. In the Canadian study, we decomposed asset poverty rates to understand over-representation. We created a disproportionate index where 1 is perfectly representative of the population rate.

Variable Population Asset poor Disproportionate index
Female lone parents 3.91 6.01 1.54
Age under 25 6.26 9.65 1.54
Renters 36.37 51.11 1.41

Although not perfectly comparable with the CFED and Haveman results (e.g., race and ethnicity is not measured in the Canadian survey), there are some parallels between Canada and the U.S. Asset poverty is disproportionately experienced by female single parents, younger people, and renters.

Our recent study reinforces the importance of asset poverty measurement to understand dimensions of poverty and economic vulnerability that go unnoticed when using an income based measure of poverty.

Importantly, the method of asset poverty measurement used in the U.S. and Canadian studies assumes that households need a certain amount of asset to meet consumption needs at the poverty threshold. In addition to asset poverty measures described above, new and more comprehensive asset-based economic well-being measures have been recently developed in the United States. These measures incorporate ‘asset for development’ perspective in that they recognize assets’ roles in promoting long-term economic development as well as assets’ roles in protecting families from unexpected economic emergencies (Nam, Huang, & Sherraden, 2008). For example, the Asset Security and Opportunity Index produced by the Institute on Assets and Social Policy at Brandies University includes asset opportunity as well asset security. The asset security index measures economic stability and a type of precautionary savings. While asset security is similar to asset poverty (i.e., assets needed for the period of unemployment), asset opportunity is a fundamentally different concept: it is based on the amount of economic resources needed for a family’s investment for the future (i.e. assets for college education, homeownership, and business start-up). Using this concept, over 50% of U.S. households have insufficient assets to promote social development (Shapiro, Oliver, and Meschede 2009).

In addition to precautionary savings for the time of unemployment, the US Department of Commerce (2010) highlighted the importance of two asset measures: savings for college education and retirement. College savings amounts are estimated from zero to $6,800 per year depending on family type and income while retirement savings is assessed as 1.2% to 3.3% of annual family income (U.S. Department of Commerce, 2010). The most comprehensive asset measure is included in a new framework called the Basic Economic Security Table (BEST): precautionary, retirement, homeownership and college education (McMahon, Nam, & Lee, 2011). Using the BEST, we estimated that monthly savings required to meet all four saving needs ranged from $155 to $572 depending on family size and conditions.

References

Brandolini, A., Magri, S., & Smeeding, T. M. (2010). Asset-based measurement of poverty. Journal of Policy Analysis and Management, 29(2), 267-284. doi:10.1002/pam.20491

Katie’s Questions on Financial Practices research

1) Logistic regression and causality (look at page 316 of Hilgert and Hogarth, 2003).

2) Important idea to look at: “hierarchy” of financial practices.  Hilgert and Hogarth discuss a hierarchy that goes from cash flow management, to credit, to savings, to investment.  Buckland et al., in their literature review, discuss Lusardi’s concept of “basic” versus “advanced” literacies – she says that people with low income do not need advanced literacy.  How does this inform policy/interventions for low income people? (This is more of a rhetorical question – an idea that we can return to later on).

3) Look at concept of statistical significance.

 

 

Questions from Readings: Buckland & Simpson, Lalime & Michaud

Independent Study Project, Financial behaviour among Canadians.

Background readings.

Simpson & Buckland: Examining evidence of financial and credit exclusion in Canada from 1999 to 2005

Am struggling to understand the method they developed: what, for example, is probit regression?  The model used seems to have been developed by Jappelli (is also used in the Lalime & Michaud article) and used the life cycle as model of consumption.  See article for formula used.

Lalime & Michaud: Litteratie financiere et preparation a la retraite au Quebec et dans le reste du Canada.  Financial literacy and preparing for retirement, a comparison between QC and the ROC.

Methods (Questions): also using the life cycle model of consumption and Jappelli’s model.  Shows how financial literacy and savings habits depend on the same fundamental elements…which are?

The model is developed to show financial literacy and savings are dependant on revenue.  How?  I have no idea.  See page 7 for the formula.

Page 8: Indicates that investment in retirement increases with revenue, but goes down with increased financial literacy.  This seem counterintuitive to me.

Refers to two periods of revenue/savings that are unclear to me.

*Didn’t quite understand if the variables measured to try to explain the difference in QC were then the reason, in the end, or if they were ‘measured out’.   Other variables measured:

-Socio economic status

-Fewer people finishing post secondary

-Lower levels of family income

-Highest level of immigrants in Canada (different education systems?)

*In the conclusion, I still want to ask why…

Poverty intervention: child stimulation and parent-child interactions

I’ve recently come across innovative interventions in different contexts to address poverty. The title of the first paper is quite descriptive Labor Market Returns to Early Childhood Stimulation: a 20-year Followup to an Experimental Intervention in Jamaica. Overall, the authors find large positive effects from experimental conditions. From the abstract:

We find large effects on the earnings of participants from a randomized intervention that gave psychosocial stimulation to stunted Jamaican toddlers living in poverty. The intervention consisted of one-hour weekly visits from community Jamaican health workers over a 2-year period that taught parenting skills and encouraged mothers to interact and play with their children in ways that would develop their children’s cognitive and personality skills. We re-interviewed the study participants 20 years after the intervention. Stimulation increased the average earnings of participants by 42 percent. Treatment group earnings caught up to the earnings of a matched non-stunted comparison group. These findings show that psychosocial stimulation early in childhood in disadvantaged settings can have substantial effects on labor market outcomes and reduce later life inequality.

And a second family-level intervention focusing on childhood stimulation recently won a $5 million dollar grant from Bloomberg Philanthropies. The excellent Emily Badger reported it here Can We Disrupt Poverty by Changing How Poor Parents Talk to Their Kids?

Apparently the idea proposes a way to measure the quality and quantity of parent-child interaction. From the article:

The device, a 2-ounce specialized recorder about the size of a deck of cards, maps the intensity of communication between parents and children. The infants and toddlers in Providence Talks will wear it twice a month, tucked into a custom-made vest, for 12 to 16 hours at a time. The recorder then plugs into a computer, where software automatically converts the audio files into charts that can be used by Meeting Street to coach the parents on how and when they might speak to their children more often.

Income inequality in Canada making headlines

The Globe and Mail has created the Wealth Paradox series to educate Canadians about the enormous impact of income inequality in our nation today.  The piece is extremely readable and filled with edifying examples of how inequality is negatively affecting Canadians’ access to education, health care, and even recreation.  Further, it looks at solutions.  While the simplicity and directness of the series may be criticized by some who expect more nuance in such discussions, I believe that its strength lies in its accessibility (to those who can afford to subscribe to the Globe and Mail, but that’s a conversation for another time).  This is something that we need to be talking about.

 

 

Week 13 Memo questions

## Week 13
1. What standard(s) of knowledge should be used to designate a development approach as a best practice? Discuss two to three standards.
2. Ohmer and Korr (2006) reviewed 269 total studies. 20 of these were quantitative studies and further only 9 with control/comparison group. What does this tell you about the nature of knowledge in community practice?
3. Assuming you are leading an agency and you have a budget to build capacity for research and evaluation among your social work staff. How would you proceed?

Week 12 Memos

## Week 12
1. Small et al make a strong case that careful study of culture can and should be a “permanent component of the poverty research agenda”. In other words, culture plays a role in explaining why people are poor. Can you recount a professional example where you observed how culture, as used by Small et al, played a role in explaining poverty?
2. Based on the first two sentences in question 1. Do you agree or disagree with Small et al that culture plays a role in explaining why people are poor? Use three points to support your position.
3. Mani et al present an altogether different reason for poverty, i.e., that economic instability reduces limited cognitive resources that leads to decisionmaking and behaviors that may reinforce poverty. Some have called this a “scarcity” argument. How do you make sense of these competing arguments – culture and scarcity? How will they inform your practice?
4. Richard Florida argues for an economic development policy based on diversity and creativity. Explain with 2-3 points why you agree or disagree with his argument. Comment specifically on how it will affect poverty.

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