The ability of a family to transfer wealth from one generation to the next is the single most important factor for ending intergenerational poverty. Yet the ability of low-income people to grow wealth by owning assets in the U.S. has been decreasing since the Great Recession, not increasing. That’s why I read The Economist’s Graduating From Destitution with great interest. It cited an emerging ‘universal fix’ for poverty, already tested in six countries, that handed out assets, supported recipients with several months of cash transfers, and then provided as much as two years of training and encouragement. The interventions not only led to increased income but a 15% increase in the value of participants’ assets as well. Fascinating.
Why does this matter for the United States? By 2040, America will be a majority non-white nation. But the stark reality is that due to housing segregation, discriminatory lending policies, failing education systems, and mass incarceration, among other issues, the new majority will be a lot less wealthy, less educated and less free. Today, the top 10% of White Families hold 90% of the nation’s total wealth. Hispanics hold 4%, while Blacks hold a mere 2.7% of that wealth. The average White family has over $110,000 in wealth v. less than $12,000 for families of color.
Who Holds the Wealth?
90% In America, the top 10% of White Families hold 90% of the nation’s total wealth.
As we become a majority non-white nation, we have to double-down on how we help people to build their assets. Historically, many Americans built assets – and wealth – though homeownership. But in today’s economy, those prospects for low-income families and people of color are not looking bright. We need to add to our focus on homeownership and think outside of the box to develop new asset- building strategies that have the power to not only increase wealth over time, but also to ensure that it be transferable to future generations. Here are four approaches that we should consider testing:
1) Expanding Access to Capital for Small Businesses Owners and Entrepreneurs: In today’s economy, it’s difficult for potential small business owners and entrepreneurs to find the capital to start and grow a new business. This is especially true for people of color and women. We not only need the jobs these businesses can create but also the wealth that can come from their success. We’re encouraged by an emerging trend to create local early stage funding pools to fill this need. In DC, for instance, the DC Digital Tech Fund awarded $840,000to help accelerate eight projects chosen from over 140 applicants. As a condition for the investment, the eight companies will have to be located for at least three years along the Digital DC Tech Opportunity Corridor, and hire a majority of new staff among a pool of D.C. residents.
2) Creating a Market for People to Buy Interest in Assets: We need to make it easier for low-income people to invest in and profit from the emerging “sharing economy.” Sharing in the purchase and ownership of assets not only reduces the upfront cost of entry but the risks involved in ownership as well. Many joint homeownership options currently exist, but it’s time that we expand the possibilities and lower the barriers to entry, for low-income people, to other assets as well.
3) Reinvigorating Profit Sharing Agreements and Employee Stock Option Plans: Last month, Professors Joseph R. Blasi, Douglas L. Kruse and Richard B. Freeman wrote a compelling op-ed, in the New York Times, arguing for the return of a distinctly American idea, profit-sharing, to address wealth inequality. They argue that companies need to more broadly provide “grants of stock (as in the case of employee stock-ownership plans), restricted stock (which has to be held on to for a certain period of time, incentivizing workers to stay) or stock options.” Their proposal that federal, state and local governments offer tax breaks and preferences in the awarding of government contracts to companies that implement profit-sharing and employee-share ownership should be considered in any inequality strategy.
4) Adapting the ‘Graduation’ Approach described in Graduating from Destitution to the U.S. Context: One of the biggest criticisms of our current government assistance programs is that there isn’t a meaningful strategy to graduate people off them. While the debate about relief programs has become, unfortunately, deeply politicized, if we are serious about addressing poverty and inequality, we will need to get beyond the rhetoric to really hone in on what elements have worked and where there is room for improvement. We must redirect resources towards what actually works. Having been tested in six countries with promising results, we should not ignore the potential of marrying elements of the ‘graduation’ approach with current programs. What is the U.S. equivalent of supplying people with chickens that can help them to generate income? Is it assistance with starting a small business? Can such assistance be combined with short term income support and training? I believe that there might be something to it, but it will take creativity and openness. We would do well to pay attention to additional data emerging from countries experimenting with these types of strategies.
Expanding the options for low-income people to build assets requires players from across sectors, public, private and nonprofit, to come together in new and different ways. It requires innovative solutions at scale. If we can accomplish this in America, I believe we’ll be on the right path to that “universal fix” to poverty.
Photo: Assets by Simon Cunningham, Flickr. CC by 2.0.