In Tuesday night’s State of the Union address, President Obama laid out a vision for rebuilding the middle class with pathways to the middle class for lower-income families. But to manifest this vision, we need a much stronger focus on addressing the root causes of concentrated, generational poverty: financial insecurity and lack of ownership.
In our work to build communities of opportunity where low-income people and people of color can thrive, we must acknowledge that income is how you get out of poverty, assets are how you stay out.
While income inequality in the U.S. recently hit its highest peak in 78 years, the wealth gap is even worse. The racial wealth gap—the difference in net worth between households of color and that of their white counterparts—has more than tripled since 1984. Today, African-American and Latino households have less than $1 in assets for every $6 that white households own. This is taking place in the context of a major demographic shift that will only magnify the costs of the racial wealth gap. By the end of the decade, the majority of youth will be people of color, and by 2044, the population majority overall will be people of color.
Assets and ownership are fundamental to economic opportunity and mobility. A child with a savings account in their own name is 2.5 times more likely to complete college than a child without one. That number jumps to 4.5 times more likely if that child is from a low-income household. Homeownership is linked to inheritance and access to credit, while access to credit is based on your income.
This is why all anti-poverty work should aim to result in financial empowerment and ownership. This doesn't mean that we all need to become experts in financial access, it does mean however, that regardless of the area of need—whether in health, education, housing, or serving the re-entry population—we should all have an eye toward connecting clients with partners who do have this expertise. For example, a bundled financial services model, such as those found in Financial Empowerment Centers, are available all over the country. Similar financial opportunity centers are hosted by the United Way and LISC and are helping low-income people with a range of financial issues from job placement to credit or foreclosure counseling, benefits assessments, tax preparation and more. These practices have had incredible success in helping families master their financial situations.
The time has come to use a more integrated approach to delivering these services. This can happen from many angles. In the community economic development field, worker-owned cooperatives are on the rise, addressing the problem of both unemployment and lack of ownership. In the public health sector, public health departments are using referral systems to connect low-income parents of newborns to financial coaching through home visiting programs. State and local governments are opening savings accounts for enrolled students in order to incentivize early savings for college. Additionally, innovations in capital-raising for small businesses are reshaping the rules around who can and should be an investor in community businesses.
Chief Justice Louis Brandeis said it best: “We can have wealth concentrated in the hands of few, or we can have democracy, but we cannot have both.” The work of building an equitable economy in which all can participate and prosper cannot be complete if we provide jobs, but do not increase ownership. Helping low-income families master their financial positions does more than just balance their budget sheets. It changes a struggling person’s disposition with their finances—typically a large source of stress and shame. It frees up the mental energy that is typically spent battling financial issues and allows that person to plan for the future. Under our current political climate, particularly with Citizens United, addressing gaps in income and wealth now become an economic imperative as well as an imperative to uphold our democracy.
(Photo credit: Flickr user LendingClub.com, CC BY 2.0)