Testing the Asset-Based Theory of American Social Welfare Among American Households

The ownership of financial assets protects American households from rising income instability. The asset-based theory of American social welfare, conceptualized by Sherraden (1991) and amended by other scholars, posited that social welfare programs reduce poverty by enabling households to save funds to purchase assets.  While a large amount of funds has been invested in programs designed to help low-income American households to build assets, fundamental elements of the theory remain inadequately tested. For example, the only previous study that examined the mediation effect of future-orientations on the relationship between asset-ownership and a financial outcome operationalized assets as comprised primarily of farm animals (i.e., oxen, chicken, pigs, etc.), substantively deviating the original conceptualization of asset-ownership.

To fill this gap in the literature, this research tested this mediation effect among a representative sample of American households. The researcher hypothesized that future-orientations would fully mediate (fully account for the indirect effect) the relationship between asset-ownership and financial well-being.

The 2011 Panel Study of Income Dynamics (PSID) and 2011 Transition to Adulthood Supplemental (TAS) data were merged to instill a multigenerational aspect to this study. The dependent construct was young adults’ financial responsibility, the proxy financial outcome, and was measured by four ordinal response options to TAS questions relating to the young adults’ responsibility for earning income, paying own rent, paying own bills, and managing own money. The mediator construct was young adults’ future-orientation, measured by four ordinal response options to TAS questions relating to the frequency of a young adult talking to their mother or father about future educational plans, work plans, family plans, and work-family conflicts. The independent variable was parental asset-ownership measured as the sum of the parents’ home values, other real estate values, vehicle value, and amount of funds in the parents’ checking and savings accounts. Two structural equation models were tested: one for the future-orientation questions relating to young adults speaking to their mother about the various future-related items (“the mother model”); the other for talking to their father about the various future-related items (“the father model”).

Both models exhibited strong goodness-of-fit statistics and factor loadings of the observed items. In the mother model, the results indicated that parental asset-ownership had a direct effect (β = -0.174, z = -6.91, p = 0.000) on young adults’ financial responsibility, coupled with a partial mediation effect of young adults’ future-orientations (β = 0.012, z = 4.17, p = 0.000) on the relationship between parental asset-ownership and young adults’ financial responsibility. The direct effect of parental asset-ownership on young adults’ financial responsibility reached significance in the father model (β = -0.176, z = -6.76, p = 0.000), whereas the mediation effect was not significant (β = 0.002, z = 0.79, p= 0. 427).

The results suggested that assets impart beneficial effects on young adults’ financial responsibility, as well as influencing future-orientations, as scholars had conceptualized previously. These findings underscore that asset-development programs should invest in helping participants to develop strong future-orientations which should translate to beneficial financial outcomes for the participants.