Can Americans still go from rags to riches ?
NBER The Distribution of Wealth in the US, 1962-2016
The rich get richer
Over the last 6 decades, the wealthiest people in the US have become even wealthier.
Line up everyone in the US, based on their family net worth, from wealthiest to poorest. The first 20% in our line owned 81% of all the wealth in 1962. By 2016, this top group owned 90% of all the wealth.
The second, third, and fourth quintiles, actually lost wealth over time with their losses going to the top group.
The bottom 20% started with a negative net worth in 1962 and were still negative in 2016.
This concentration of wealth at the head of our line of families worries many people. Not only are people concerned about the “fairness,” many wonder about the efficiency for the US economy.
What causes such concentration? What actions by governments, corporations, and non-profits might reduce it? Or is this just normal in our capitalist system?
Some dispute the importance of wealth inequality - it is difficult to measure, it changes over time, it has been worse in the 1920’s, etc. But many researchers worry about our current wealth concentration.
Resources - think tanks
Peterson Institute for International Economics
Center for Economic and Policy Research
Center for Budget and Policy Priorities
Washington Center for Equitable Growth
Harvard list of think tanks on inequality
for a different perspective, Cato (I asked a question around 38:00 into the first video) which makes the argument that the lower end is doing better than reported (due to welfare payments, housing subsidies, etc) and the wealth at the upper end has not grown as much as reported
Plus press coverage such as a 2021 series from the Washington Post
Recommendations from Peterson Institute for International Economics, make sure those at the bottom are not pushed even farther down and make sure those at the top contribute their fair share to society.
Increasing Black and hispanic household wealth
A primer from Bankrate on how to combat the racial wealth gap:
Increase your financial literacy through education
Automate your savings and don’t be afraid to start small
Negotiate for higher pay and advocate for yourself
Automate your savings and build a financial plan
Don’t shy away from investing
Use technology to your advantage
Consider starting a business or side hustle
Pursue an education, which can help you increase your earnings
Plan for retirement
A recent article on Financial Literacy in the Black Community from Annuity.org highlights differences between African Americans compared to white Americans:
A lack of financial resilience was more common among African Americans than white Americans.
Insurance tends to be the greatest knowledge gap among African Americans, followed closely by comprehending risk, investing and identifying reliable sources of financial information.
Debt management is the area of highest personal finance knowledge among African Americans.
Among surveyed African Americans, financial literacy is greater among men, older individuals, those with more formal education and those with higher incomes.
TIAA conducts research on financial literacy in the US. The 28 question personal financial quiz shows that Americans can correctly answer only about half of the questions. The results vary by race, age, etc. For example, 60% of whites answer at least half of the questions correctly compared to 28% of blacks. Those with lower scores tend to be less satisfied with their current financial situation - learn more, earn more.
2021 Survey of Consumer Finances - average household wealth in the US 2016: White $188,200, Black $24,100, Hispanic $36,100. What has caused this racial wealth gap? Generations of low earnings, low homeownership, and low savings. What to do now?
How to avoid predatory lenders? Read the guide from Deed Street. “Predatory lending is a type of lending that uses unfair or deceptive practices to convince someone to take out a loan that he or she may not be able to afford. It benefits lenders at the expense of borrowers, who are often lured in by the promise of low payments, only to find out later that the loan comes with high fees and interest rates.”
Texas is the home of many predatory lenders, particularly payday lenders that charge both high interest rates and high fees. Generally if the pitch from the lender is too good to be true, run.
The CFPB has been fighting with payday lenders for years, over the “full-payment test.” That test would require lenders to determine whether the borrower can make loan payments and still meet basic living expenses and major financial obligations both during the loan and for 30 days after the highest payment on the loan.
In other words, before making the loan, lenders must determine that a consumer can actually pay it back without going broke. But predatory lenders have fought against that requirement.
The Consumer Financial Protection Bureau also has a good consumer resource / education center.
Resources - academic and advocacy
Thomas Piketty Capital in the 21st Century
Stanford Center on Poverty and Inequality
Plus lots of info from the Federal government such as the Survey of Consumer Finances
Read Poverty, by America by Matthew Desmond