The Mediating Role of Assets in Explaining Hardship Risk Among Households Experiencing Financial Shocks

Material hardship is common among low- and moderate-income (LMI) households. Without liquid financial assets, these households are more likely to experience hardship in the face of financial shocks—large and unexpected expenses or dips in income. Authors hypothesized that shocks have a direct effect on hardship, and that liquid financial assets partially mediate the relationship between shocks and hardship. Authors used structural equation modeling with tax data and responses to a household financial survey from a sample of LMI tax filers (N = 8,251). Most (66%) filers experienced at least one shock and had an average of more than two hardships in the six months after tax filing. The structural model fit the data well (comparative fit index = .966, root mean square error of approximation = .029 [.026, .032]). The direct effect of shocks on hardship and the indirect effect through liquid financial assets comprised 90.5% and 9.5% of the total effect, respectively (p < .001). Results suggest that liquid financial assets enable households to meet basic needs in the wake of financial shocks. Implications for social workers to help LMI households build liquid financial assets and address other hardship risk factors through direct and policy practice are discussed.

Project: Refund to Savings