Yesterday, I attended a very interesting event sponsored by the CFED-sponsored Asset Building Policy Network, a coalition of organizations focused on supporting asset building policies such as individual development accounts and more consumer friendly banking policies. The topic was “Unfinished Business: Winning the Battle for Economic Opportunity,” and the discussions focused on what needs to be done to make progress in the fight against growing income and wealth inequality. It was an enlightening and sobering discussion, but I’ll just highlight two big takeaways for me:
1) Income inequality is a growing issue, but the challenges of wealth inequality are even more profound. We’ve all seen reports about growing income inequality in the U.S., but the findings on wealth inequality are even more sobering. Many Americans, especially Blacks and Latinos, are living one calamity away from economic disaster. Roughly 1/3 of Blacks and Latinos have no financial assets whatsoever—compared to 14% of Whites. When it comes to available liquid assets (those that could be immediately deployed in an emergency), the situation is more scary. African Americans have a median liquid wealth of only $200; Latinos hold a median level of $340. Meanwhile, many Whites ($23,000) and Asians ($19,500) have access to liquid assets, and overall net worths that are 13-15 times higher than their African American and Latino counterparts. (All data used here come from the May 2014 Beyond Broke study by the Center for Global Policy Solutions.)
2) Family wealth generation and preservation is an inter-generational matter. The real generators of household wealth pass across generations—in the form of home ownership, educational benefits, and inheritances that come from a lifetime of hard work and savings. A good job can help reduce immediate gaps, but it might not address sustained wealth gaps on its own. For this reason, we may need to think bigger and consider other kinds of policies that address the wealth gap head on. One example might be the use of baby bonds where each newborn is provided with a small savings account (e.g. for $500) that will grow and can be used for needs like education when the child reaches adulthood. The UK experimented with this approach in 2005, but the program was eventually ended by the current government.
Big ideas can also be accompanied by some smaller scale solutions such as expanded use of coaching where people can gain access to “coaches” who offer advice on financial management, savings, and other strategies. Yesterday, NPR’s All Things Considered profiled a successful model program used in Pennsylvania and elsewhere. Under the Circles program, poor families are matched with 3-4 middle class volunteers known as “allies.” These allies provide coaching, advice and support on a host of issues from commuting to child care to savings to grocery shopping strategies and the like. This kind of intensive hands-on coaching has been shown to have big impacts in helping families move out of poverty.