Tuesday, May 03, 2016

It's tough at the bottom

Wealth inequality is even more of a problem than income inequality. That’s because you have to have enough savings from income to begin to accumulate wealth — buying a house or investing in stocks and bonds, or saving up to send a child to college. Many Americans have almost no savings, so they have barely any wealth. Two-thirds live paycheck to paycheck.

Once you have wealth, it generates its own income as the value of that wealth increases over time, generating dividends and interest, and then even more when those assets are sold. This is why wealth inequality is compounding faster than income inequality. The richest top 1% own 40% of the nation’s wealth. The bottom 80% own just 7%.

Wealth is also transferred from generation to generation, not only in direct transfers but also in access to the best schools and universities. Young people who get college degrees are overwhelmingly from wealthier families. Which is why kids from low-income families, without such wealth, start out at a huge disadvantage.

This is especially true for children of color from low-income families. Such families typically rent rather than own a house, and don’t earn enough to have any savings. Families of color are especially disadvantaged because they’re less likely to have savings or inherit wealth, and face significant barriers to building wealth, such as discriminatory policies and practices that thwart home ownership. The median net worth of white families is now more than 10 times greater than that of African-American or Latino families.