Avoiding Material Hardship: The Buffer Function of Wealth
Richard Rodems1, Fabian Pfeffer1
1University of Michigan
We assess how a variety of adverse and demographic events – fertility, divorce, migration/relocation, disability, job and income loss – impact the well-being of U.S. households and describe the importance of family wealth in avoiding spells of material hardship. Using longitudinal data from the Survey of Income and Program Participation (SIPP), we draw on direct measures of experienced material hardship, adverse events, and family assets. Using regression and decomposition analyses, we demonstrate that the relationship between demographic events and the likelihood of experiencing a spell of material hardship strongly varies across the wealth distribution, suggesting that household wealth provides an effective private safety net. Like public insurance schemes, wealth insurance helps buffer the effects of demographic events on material hardship, but unlike public insurance schemes, reliance on private wealth further stratifies the economic well-being of U.S. households.