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Mar. 30 2010 - 8:49 am | 1,040 views | 2 recommendations | 24 comments

Why can’t people escape poverty? It’s not income, it’s wealth

It's not how much is coming in. It's what's in the bank that counts. Photo by borman818.

If you heard the shocking statistic earlier this month that black women have a net worth of $5, then you must read Latoya Peterson’s personal account of the struggle to attain wealth and rise above poverty.

Peterson, who left home at 17, worked fast food and clerical jobs, which often have no benefits or savings plans. That means when hard times hit, there’s little to fall back on, since their meager wages just meet expenses.

Listen to her story:

When I left home at 17, I moved out with two garbage bags full of possessions, $1,000 meticulously saved from two different $7-an-hour jobs and not much else. I had no car. I had no driver’s license. I had no credit history. Even if I had received a blessing from my mother, there would be no cash to help out, no bestowal of funds my parents had saved in a college fund. I was on my own. As the report explains, the key to financial stability is wealth (for example, assets, savings, stock holdings, business income), which can be passed from generation to generation, to ease the path for those struggling in their youth. However, for the more than 46 percent of single-parent black households that have zero or negative wealth, there is literally nothing to pass on — many households are struggling to stay afloat, living from paycheck to paycheck.

This is one piece that “pull yourself up by your bootstraps” idealists miss. Maybe we do live in the land of opportunity. Maybe everyone is born with the chance to make it.

But we’re also born with baggage – positive or negative – the baggage our parents left us. For many white families, that’s credit, equity and savings due to having access to low-interest mortgage loans from the government. Black families, who for years were denied these loans, start out farther behind. It’s like starting a race with a weight strapped to your foot and a blindfold over your eyes.

Peterson says the solution to this is education. When she did land a job with a 401-k, a kind HR rep sat her down and told her how it could help her meet her financial goals.

With personal education, there also needs to be an education for the rest of us. To help us realize that Peterson is not alone. Her story is not an anamoly. This is the piece of the puzzle that keeps people mired in poverty, dependent on government subsidies.

Weeks ago, we were shocked by the statistic. I hope Peterson’s story helps it stay with us.


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  1. collapse expand

    Equally crucial, I think, is acquiring and using social capital — knowing people who can and will help you access well-paid jobs, not just low-wage work with no benefits. My partner inherited no money from his poor family but worked hard from his freshman year of college (scholarships paid) and made sure to meet as many people in his desired career/industry as he could. Thanks to talent and hard work — and a few key introductions — he achieved his goal.

    You can work hard forever (the myth is that is enough and it is not) but without access to people willing and able to help connect you to better opportunities, it’s a very greasy pole.

  2. collapse expand

    “…There also needs to be a lot of education for the rest of us.”

    What a buncha smarmy elitist crap!!

    I bust my ass. I save. I live beneath my means. I give back to my community. I donate my time and money to charity. I have a spotless credit rating. I owe none of this to any government-sponsored mortgages. I owe it my immigrant ancestors who were Czech coal miners and Irish railroad laborers. They upheld a family a code of honor and put a premium on education and hard work. The federal government did not make my family great. We did it then. We are doing it now. And we will do it in the future despite (not thanks to) the usury of the federal government. And BTW: This stated viewpoint has nothing to do with the current corporatist “health care reform” debate.
    It would be refreshing to read a liberal (or neo-con, for that matter) piece that does not end up in the exact same place: MO central government.

    • collapse expand

      Did I say anywhere in the piece that we needed more central government? I don’t recall writing that. Maybe you could point it out to me.

      Hate to break it to you, but by the time the federal government had a hand in things, your Czech and Irish ancestors were considered white. Therefore, they had the privilege of better schools, living in better neighborhoods and the ability to get a mortgage. All of those build wealth. Did they work hard? I’m sure they did. I’m not saying your family didn’t. I’m saying some people’s families start out behind, and it’s harder for them to move forward. Why does that have to be about you and your family?

      In response to another comment. See in context »
  3. collapse expand

    There’s a terrific book on this very subject called “Nickeled and Dimed” by Barbara Ehrenreich. It doesn’t focus of black women exclusively, just anyone who lacks an education and is forced to work minimum wage jobs–what we now term “the working poor”. To write the book, she worked these kinds of jobs all over the country and lived only on the money she made in that capacity. It’s a real eye-opener, because you learn that it’s actually more expensive to be poor, when you consider security deposits that need to be amassed to rent a decent apartment, the uniforms they are often required to buy to do their jobs, etc. It also shines a light on the predatory practices of big box stores and other franchise operations when it comes to taking care of their employees. It borders on slavery and yet our politicians have done almost nothing on the concept of a “living wage”. When you read stuff like this, you have to root for unionization of unskilled labor.

  4. collapse expand

    Not a proposal, but a great point. These people do need unions and I can afford to pay more @ Home Depot. What a wonderful world we could live in if we could trade the union cards of people who don’t need unions in for the people who do need them.

    • collapse expand

      I thought it was a great proposal too. I think unions can help, or finding some other way to demand that these workers, who keep our stores, restaurants and cities running, need a living wage and a decent benefits so they can get ahead. Is there another way to do that besides unions? I’m not sure. Unions get such a bad rap these days that it seems very unpopular to propose them.

      I think that in addition to unions, we need members of the public with 401k’s and savings accounts and houses to realize the predicament many people are in. I think sometimes its just as simple as saying “I could afford to pay more at home depot if it means people get a fair deal” like you just did.

      Nickel and Dimed is a great book. It’s definitely worth a read, although it’s really depressing and sobering.

      In response to another comment. See in context »
  5. collapse expand

    I recently interviewed a woman, 51, for my book about retail work — who, with a Master’s degree (white) is making $7.25 an hour and only surviving thanks to her mother’s financial help.

    The wages paid in retail are appalling and every single person I interview who works above the associate level — i.e. might help change that — just shrugs and looks helpless when I challenge this status quo.

  6. collapse expand

    Small point. You write, “For many white families, that’s credit, equity and savings due to having access to low-interest mortgage loans from the government.” Be careful of the word “many.” If you dig into IRS and other statistics about wealth in this country, you’ll quickly find that only about 1% of Americans qualify as wealthy, say earning over one million or five million dollars in a year. Even if twenty percent of families pass on credit, equity, and savings to their kids, that’s not many.

    The truth probably is that most families in this country do not earn enough to pass on to their kids. The truth probably is that the de-taxation of the wealthiest over the past three decades has made this problem worse, not better. Again, statistics show that from roughly 1945 to the 1970s all income groups doubled their income while since the 1980s only the top 1% has. Everyone else has seen their income increase about 1-3% a year with the poor being hammered the most.

    The only way to reverse the economic situation you describe is to re-tax the wealthiest (they used to pay 90% in the 1950s, 60% or so in the 1960s, but only 16% effective rate for many today) and force certain companies (e.g. WalMart and Home Depot) to either unionize or pay union wages and benefits plus five percent. I also should mention that the Wal Mart family, in particular, is part of 18 families that in 2005 or 2006 quietly pushed to eliminate estate taxes so these 18 families could keep their combined $185 billion to hand to their kids and grandkids, people who had nothing to do with taking the risks to create that wealth.

    We can do a lot of things on the margins to help people like Peterson. But we won’t truly help her until we also fix the problems around aristocratic trust fund wealth in this country.

    I also second Nickel and Dimed as a terrific book, even ten years or so on.

    • collapse expand

      Hey Tim –

      Thanks so much for your thoughtful comments.

      I respectfully disagree – in part. The “wealth” I was talking about is not necessarily a monetary level. Being able to get a mortgage on a house gives you the kind of equity that makes you able to co-sign on student loans, car loans and apartment leases. It means you probably have health insurance for your kids, and live in a decent enough neighborhood for your kids to go to a decent public school.

      Is it Coach bags and Jaguars? No. But it’s the little push that people like Peterson didn’t get when they were kids. Rather than having the money to set up a trust fund for your kids, it’s having an extra few hundred dollars to get them out of a bind once and awhile, so they don’t fall behind on their bills or get evicted.

      But, I totally agree with you on the growing wealth gap between rich and working class Americans and the need to fix it. But what’s your take on taxing the super rich? Will it slow down investment and innovation in a sluggish economy? I get that argument a lot here.

      In response to another comment. See in context »
      • collapse expand

        “But, I totally agree with you on the growing wealth gap between rich and working class Americans and the need to fix it. But what’s your take on taxing the super rich? Will it slow down investment and innovation in a sluggish economy? I get that argument a lot here.”

        I’ve thought a lot about this issue having grown up in an extremely wealthy part of the US (not because we were wealthy but because the best school was in that community) and for a few years as an adult.

        First, re-taxing the wealthiest (let’s say dollars earned over five million or ten million in a year) will not slow down investment and innovation. You can argue correctly that all this extra money lavished on the wealthiest over the past few decades has fueled the various bubbles we’ve suffered through, from the dot com bust to the real estate bust and a few in between. Money must go somewhere and people who have massive amounts of it tend to invest with hedge funds and anyone else who can work their money. That, in turn, leads to comparatively useless uses for money.

        If that money went instead to the government, for example, the other 99% of American taxpayers might not need to pay as much in taxes. We could have health care, subsidized college, research and development grants, an industrial policy that promotes green energy and US jobs. That would generate far more economic activity than we have seen these past three decades. Indeed, countries with great income inequality tend to suffer boom and bust cycles more than countries that have strong progressive taxation.

        But there’s also a moral and practical aspect to excessive wealth. You cannot create wealth period without massive taxpayer funded expenditures in courts (to enforce contracts), roads and bridges (to transport goods), education and research (to get educated employees and basic materials), fire and police, water, and so on. Taxing the wealthiest is exactly the same as Warren Buffett demanding a reasonable rate of return on his investment. Taxpayers deserve the same return. If Warren gives you a dollar and you make ten dollars, you better believe he’ll show up at your door asking for his cut of your nine dollar profit. Taxpayers deserve the same respect for their infrastructure investments, especially since wealth is impossible without that investment.

        But also think of the morality of making 344 million dollars in a year with an effective tax rate of 16.7% (as David Cay Johnston reported recently was the average for the top 400 income earners in 2006 or 2007)? So their take home for $344 million was about 285 million with taxes paid at about 59 million. In English, invested at 5%, 285 million generates 14 million a year and 1 million a month for doing nothing but breathe. Let those numbers sink in. The average US salary is about 40,000 a year, I believe.

        Now imagine if that person kept 100 million of their money and wrote a check to taxpayers for 244 million to cover taxpayer funded infrastructure that made that wealth possible. At 5% interest on their 100 million, they’d make 5 million a year and 416,000 a month, again for doing nothing for more than breathe. How much money, in short, is too much money? Insisting the wealthiest only pay 16.7% effective tax rate means our society as a whole has to forgo much of what we need so that this wealthy person can earn a million a month instead of 400,000 a month. It’s beyond selfish. Indeed, it reminds me of Imelda Marcos and her 3,000 pairs of shoes, enough to wear a new pair every day for eight years. At some point, we as a society have to step up and set the limits for wealth.

        Finally, while I whole heartedly support everyone’s right to make as much money as they can, there also is an issue around trust fund wealth. You can argue second generation gets some money because they were part of the family and may have been poor while Dad or Mom got rich. But grandchildren? Great grandchildren? It’s the same moral question: where do you draw the line between a natural selfish and human interest in keeping as much money as you make with the society and taxpayer’s equal right to a fair return and a just society?

        Sorry to go on but this is not a simple subject. It does not fit on a bumper sticker. And it requires people to think with both their hearts and their heads. Trust me, we can do better than we have since 1980 when it comes to wealth in our society.

        In response to another comment. See in context »
        • collapse expand

          The $344.8 million average income for the Top 400 Taxpayers I broke the story about was 2007. That was up 31%, or about $80 million, from 2006.

          The issues so thoughtfully discussed here — in contrast to the drunken bar level posts of most blogs — is a delight to discover.

          The issues of income, wealth and inequality are subtle, complex and too little discussed in the news or by politicians.

          Few people understand that we have changed our system from one with a top marginal tax rate (not average or effective, but on the last dollar) of 91% during the GOP Eisenhower years when the middle class had its greatest growth to Reaganism, where in 2007 the bottom 90% had smaller average income than it did back in 1973.

          What we have developed is a redistribution system that redistributes UP, way up.

          Entire industries and companies derive all of their profits from hidden subsidies. Some companies legally embed taxes into monopoly prices that you are forced to pay, but then never turn the money over to government, also legally. Many people enjoy huge incomes and legally pay no taxes, which is why it is important to keep in mind that my report was on the official data on the top 400 taxpayers — there is no official report on the top 400 incomes.

          And all of this is achieved through mind-numbing complexity than I turn into plain English in PERFECTLY LEGAL(Taxes) and FREE LUNCH (subsidies),. both of which were national bestsellers. A third book in the series will be out in the fall: THE FINE PRINT.

          To get our economy back on track we have to stop treating tax as a four-letter word unworthy of consideration and understand, as the Founders did, that taxes are the government. Indeed, that is why the first Republic failed in the 1780s.

          In Perfectly Legal (the paperback) you can also learn how the invention of the moral basis for progressive taxes gave birth to democracy.

          The system we have know, in which working class Americans bear a heavier tax burden than the very richest among us, is not a progressive system. Progresisve taxation stops, statistically, at around the $10 million income level.

          And BTW, in 2007 the only income group in America whose average income rose was the 18,000 plus taxpayers who made more than $10 million that year.

          In response to another comment. See in context »
          • collapse expand

            First, thank you for the kinds words and additional information. You’re actually one of my favorite journalists along with Dana Priest and a few others. So I’m a little gob-smacked.

            Data about wealth in this country seems fairly difficult to find. For example, I’m intrigued by your 18,000 who made more than $10 million a year. If anyone can be a millionaire, it seems the odds of being in that 18,000 and not the 300 million who aren’t, well those are lousy odds.

            I’m especially interested in data about inherited wealth. The 18 families worth $185 billion that hired a lobbyist to repeal the estate tax suggests there is a massive amount of wealth concentrated in very few hands. Yet details about that group seem well hidden. You’re more likely to hear about CEO pay or Wall Street bonuses which probably is small beer compared to old money.

            In any event, thank you for the additional data!

            In response to another comment. See in context »
  7. collapse expand

    Actually, you’re all about 5 years behind w/the Barbara Ehrenreich stuff. :)

    In her latest book, “Bright Sided”, Ehrenreich notes on page 180 that, “Americans are less likely to move upward from their class of origin than are Germans, Canadians (Caitlin!), Finns, French, Swedes Norwegians, or Danes.”

    She goes on to further add, “As two researchers at the Brookings Institution observed, a little wryly, in 2006: ‘[The] strong belief in opportunity and upward mobility is the explanation that is often given for Americans’ high tolerance for inequality. The majority of Americans surveyed believe that they will be above mean income in the future (even though that is a mathematical impossibility).’”

    So if the Horatio Alger myth would just die the death it deserves and that is long overdue, there might be an inkling of economic justice and equality in this country.

    And given the current economic climate, where Ph.D.’s are applying for waitress jobs, etc. just to survive, I’m not sure education is the answer. It’s a numbers game, and all the education in the world isn’t going to help when your job is shipped overseas, etc. Education is not going to stop the system from being broken; it may only just give you a slightly better life raft within the broken system.

    Caitlin is right, unfortunately: it’s not what you know, but who you know, that is your best bet. And Peterson obviously never had a chance on that one.

    • collapse expand

      We’re obviously behind! I’ve been meaning to pick up “Bright-Sided” so thanks for the information.

      I think basic education and technical education can still be a big help. I volunteer with kids, who in middle school, struggle to read or write on a basic level. They describe classes with 40+ students where there’s not enough toilet paper or lined paper to go around. A poor elementary education disqualifies them from the nicer high schools in the city, and they get further and further behind.

      Education can’t help you from getting your job shipped overseas, unless we can educate our children for the information age we live in. If our kids aren’t educated, they won’t be able to spur the kind of innovation we need to overcome creative destruction.

      But, I will say, my college degree certainly wasn’t a ticket out of poverty.

      Thanks again for commenting. I will pick up that book!

      In response to another comment. See in context »
      • collapse expand

        Oh wait! Heaven’s NO! I didn’t mean to imply that we should just become a nation of high school graduates and no one should go to college! :)

        What I meant in a larger context was that in light of all the labor studies showing that the largest growth over the next decade is for low-wage stuff like retail and service work because of the dismantling of the working class since the Reagan era, the real problem is “quality” jobs because the QUANTITY of them are fewer and fewer as they are shipped overseas, etc.

        You bet we need educated kids to do R&D and innovation. I just am afraid to see so many young people run off to college to get a general degree (or older ones returning), only to come out saddled in student loan debt and fighting/competing for a seat at a rapidly-dwindling table.

        College enrollment rates are through the roof (along with tuition) and Obama removing the profiteering banks and their usury student loans from the equation are great signs. However, it seems like until the Boomers retire, there’s no place to put all the newly-minted, but highly-indebted graduates.

        As far as your ticket out of poverty, keep doing what you’re doing and your day will come. It will be because of your talent and compassion; your degree will be incidental.

        (And as an off-topic aside, don’t let people try to railroad you on your credentials like I saw on the comments on one of your other posts. You don’t need to be a weather man to know which way the wind is blowing. All the credentialed people somehow couldn’t seem to figure out there was a housing collapse afoot, even though it was the cover story in Harpers magazine–complete with diagrams–in May 2006!! Robert McNamara had credentials, too, and look where THAT got the country…)

        In response to another comment. See in context »
        • collapse expand

          Yes, definitely. A college degree is not what it used to be, especially a liberal arts degree.

          I just meet a lot of people who would like to get a degree in jobs that are growing – like health care – but don’t have the basic skills to even apply. There’s this great place in Chicago that does a bridge program for public housing residents, helping them increase their basic math and reading skills while learning about health care so that they can get into a program. The graduates are really amazing! They’re so motivated. Anyway, we’re obviously on the same page here.

          I actually just wrote a piece about why I chose to go to a less fancy school to escape student loan debt (http://www.walletpop.com/blog/2010/03/21/fear-of-student-loan-debt-made-me-skip-fancy-schools-for-a-free-one/), so I am lucky not to have school debt, but so many people I know do. And many of them graduate without a degree that will get their loans paid off, which is scary. We have a huge generation of people already saddled with debt, with little prospect of getting a job and too poor of credit to qualify for a mortgage. That’s a scary prospect for our future communities.

          Thank you for your kind comments. So many people leave ridiculous, insulting comments (as is the nature of the internet), that I wish I had enough cash to send people $5 when they left a nice one. So, good karma to you :)

          In response to another comment. See in context »
  8. collapse expand

    As a man of 26 currently living in poverty, you hit the nail on the head. My parents came here in the 90s with nothing but the bags they carried with them from the airport, we lived in a motel for a month, then in a 1 bedroom apartment, 2 kids, 2 adults for 12 years.

    They also bought into this “American Dream” of study hard,work hard and you can have a house, car, good job and a secure future.

    The reality is far from it,living paycheck to paycheck and the social nepotism of the affluent drives that wedge even deeper. It’s simple to me, the more you earn in this country, the more you should give back via taxes, nothing I’ve seen so far has proven that the top earners in America spend more on improving the economy if they are taxed less. If it were so, I must have missed the Bush administration’s boom years of unbridled wealth for all.

    Heck, I’d even go so far as to say that people earning 30k and below shouldn’t be taxed AT ALL.

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    About Me

    I'm a journalist living in Chicago writing about poverty and public housing. I don't come from the streets - I grew up on a farm. But I'm passionate about urban issues and getting to know people who are completely different from me. I'm quirky, funny and friendly.

    I have this idea about journalism - that it should be approachable and less "newsy." I want my stories to make you laugh, cry and draw you in to neighborhoods and situations you don't deal with every day. I hate the broadcaster voice. I hate TV news. I hate the inverted pyramid. I love surprise. I love humor. I love people and telling their stories.

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