THE BLOG
03/16/2011 04:23 pm ET Updated May 25, 2011

Poverty Isn't Just About Income

When we think about poverty, we usually think in terms of income. That's how the federal government defines poverty: The U.S. Department of Health and Human Services, for example, defines poverty this year as an income of $22,350 or less for a family of four.

But income isn't the whole story. And the part of the story of poverty that we don't often think about has a huge role in how the current recession and foreclosure crisis is playing out in different communities.

To understand why, picture two individuals just laid off from good-paying jobs, suddenly surviving on an unemployment check that's far less than they were making:

Person #1 owns a home and has a decent amount of equity in that home, plus a fair amount of cash in bank accounts and assorted investments. In other words, she has a safety net. She'll be able to get by for six months or more on her greatly reduced income without being in serious trouble. It won't be fun, but she and her family will keep a roof over their heads, the kids will still eat, and they'll make it through the storm.

Person #2 isn't so lucky. He rents, has little credit history, and no appreciable savings. His rent will now eat up nearly all of his unemployment check, and within a month or two he could have to choose between paying the rent or keeping the lights on. Ending up homeless is a distinct possibility if he remains unemployed for more than a few months.

Person #2 is asset poor. The uncomfortable reality is that asset poverty is surprisingly common. A recent report from the National Center for Children in Poverty found that, based on financial net worth or liquid assets, more than half of all families with children are categorized as asset poor. Asset poverty is no longer just a problem of the poor or disenfranchised. It is a problem that plagues the majority of Americans.

Disproportionately, those Americans are people of color. For every dollar of wealth owned by a white family, a Latino or African American family has just 16 cents.

That difference is sometimes called the racial wealth gap, and much of it is a legacy of past discrimination. For generations, Americans of color faced a variety of discriminatory practices -- employment discrimination, unequal access to education, restrictive covenants that barred certain ethnicities from homeownership in desirable neighborhoods, and many others -- that worked to keep communities of color from building financial assets. The civil rights laws of the 1960s ended the most overt discrimination, but couldn't erase the legacy of centuries of exclusion from America's economic mainstream.

Families of color have faced a double-whammy during the Great Recession: Higher rates of unemployment and much greater vulnerability if they remain unemployed for an extended period. And families of color who own homes on average have a far higher percentage of their wealth tied up in that home than do whites, meaning that when home values crash, they take a worse hit, to the tune of many billions of dollars overall.

So when you see media reports about poverty rates, remember that income doesn't tell the whole story. And while we like to think that economics is colorblind, in the U.S., at least, the reality is very different.