Unintended Consequences of Welfare Asset Limits

May 1, 2014

Government benefit asset limits incentivize poor financial planning, contends Jeffrey Dorfman, professor of economics at the University of Georgia.

Asset limits for government benefits were established to cut down on welfare fraud. The government did not want Americans with enough savings in the bank to support themselves to nonetheless qualify for government benefits, solely on the basis of a low income. 

Many of our welfare laws contain these limits:

  • State limits on assistance from Temporary Assistance for Needy Families ranges. Nine states impose limits as low as $1,000, while 34 states have limits somewhere between $2,000 and $5,000. Six states have no limits at all.
  • Food stamp limits also vary, depending upon the state. Nine states set asset limits at $2,000, three at $5,000 and one at $5,500. Other states have done away with asset limits altogether.

Dorfman's concern is that these limits send the wrong message to low-income Americans. In order to qualify for benefits, they are effectively told not to save money or retain assets. This goes against standard financial advice that recommends that people keep six months' worth of living expenses to protect against unexpected costs or a job loss. 

Dorfman writes that some level of asset limits makes sense (around $25,000). He agrees that the government should protect its programs from fraud, but encouraging unsound financial planning is not the way to go.

Source: Jeffrey Dorfman, "Government Shouldn't Block Our Chance to Own, and Grow Rich," Real Clear Markets, April 28, 2014.

 

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