Generational Poverty the Exception, Not the Rule

Poverty is worse than you think, but it’s different than you think, too.

Even if you count yourself as reasonably well informed about poverty in the U.S., what you think you know may be wrong. For example, you may know that by the official Census Bureau measure, 15 percent of the population was considered poor in 2012, about 46 million people; you may even know that there’s a lot of variation in that rate by age (it’s much higher for children and much lower for older people), by race (it’s radically higher for African Americans and Hispanics), by geography (it’s higher in the South, as it always has been, and it’s now growing fastest in the suburbs), and so on.

You may even know that the official measure of poverty is outdated and inaccurate, and that, using the Bureau’s new Supplemental Poverty Measure (SPM), the problem is, in truth, a bit worse: the SPM shows that more likely 16 percent of Americans were poor in 2012, or about 50 million people, and that poverty was much higher among the elderly than the official measure would lead us to believe, and a bit lower among children.

Both of these approaches share a common problem, however: they are static, point-in-time measures, telling you how many people were poor at the time of the surveys used to gather these data. But poverty in America is fluid, and people move in and out of poverty over the course of a year and over the course of their lives.

Thanks to other data from the Census Bureau, we can step back a bit to see that more common kind of movement in and out of poverty. If we look at how many Americans were poor for at least two months during 2009, 2010, and 2011, for example, we find a poverty rate not equal to the Census Bureau’s 15 or 16 percent—but twice that, at 31.6 percent. That is, over a recent three-year period, almost one-third of all Americans were poor at least once for two months or more.

U.S. household economies are fragile, so it often just takes one crisis to push a family over the edge—from just getting by to not getting by at all...

There’s another important lesson to learn from this data: while lots of Americans experienced a “spell” of poverty during those years, only 3.5 percent of the population was poor for all 36 months.  So how we think about poverty is all wrong: it’s a much more common occurrence than people realize, and the chronic, persistent, generational poverty that features so prominently in political rhetoric and media coverage is very much the exception, rather than the rule.

We can step back even further, and look at the likelihood that any American will encounter poverty at any point over the course of their entire adult lives, thanks especially to research done by Mark Rank at Washington University in St. Louis. What his work tells us is that more than 40 percent of Americans between the ages of 25 and 60 will be poor for at least a year.  Over the same period, more than half will be poor or nearly poor, with income at 150 percent of the poverty line, or about $27,000 annually for a family of three.

So poverty in the U.S. is, in fact, a much larger problem than we think it is, and it’s one that most Americans will face.

While that’s a grim realization, perhaps it’s also a cause for hope.  Maybe if more Americans understood what their own personal stake is in committing to poverty reduction, they might be more inclined to press for higher wages, better access to affordable child care, more generous social welfare programs, a reinvigorated right to form a union, and so on. These are not policies that benefit some group of Others, but policies that serve the majority of us. If we can’t count on empathy to improve well-being, maybe selfishness will do the trick?

We live in a world of widespread economic fragility, of insecurity, of what some have come to call precarity:  According to one recent survey, about one-in-four Americans have no savings at all.

U.S. household economies are fragile, so it often just takes one crisis to push a family over the edge—from just getting by to not getting by at all: An injury that makes it impossible to work, a sudden physical or mental illness, a death in the family, a car breaking down, or even the birth of a new baby.  All of these can be traumatic economic events for a family with little or no savings and no margin for error—events that most families recover from, with time. But then the next crisis hits. And in the U.S., you can’t necessarily count on the social safety net to be there for you when you need it. And you’ll need it.

We can’t hope to address a problem if we misdiagnose it, and one of the virtues of thinking more clearly about what poverty actually looks like is that a better diagnosis might alter the political landscape.

Don’t fight poverty because you feel sorry for other people; fight poverty because the odds are increasingly high that you and your family will be poor someday, too.



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Safety Net

Can We Talk Poverty Without Talking Money?

When we talk about poverty, we often talk about material hardship and the cost of things like housing, food, clothing, and transportation.

But when we look at the budgets of struggling families, we often ignore the cost of money itself. Yet the old adage that it takes money to make money is also true in reverse. Without money, it costs money just to deal with money.

The cost of a bank account has gone up in recent years. Only about half as many banks offer free checking accounts as they did in 2009, and the average minimum balance to avoid bank fees reached $723 in 2012, up 23 percent from the previous year. At the same time, not having a bank account—roughly 17 million American adults don’t, according to the Federal Deposit Insurance Corporation (FDIC)—can be even more expensive. And policymakers need to factor in these costs when making decisions not just about banking regulations, but a wide range of policies that affect low-income families. Otherwise, struggling families and consumers will continue to lose dollars needlessly.

Take the case of Natalie Gunshannon, a McDonald’s employee in Pennsylvania.  She sued her local franchise last year when it forced her to receive her wages on a prepaid debit card. This card charged $1.50 for every ATM withdrawal, or $5 to withdraw cash at a bank. It even charged $1 to check the account balance at an ATM, and 75 cents to pay bills online. Depending on how the card was used, it could easily drive someone’s earnings below minimum wage.

In Natalie’s case, using the card made no sense because she already had a free account at a local credit union. But not all low-wage workers have good alternatives like Natalie, and if they decide not to participate in the mainstream banking system, they may ultimately pay even more for simple transactions. Check cashers may charge from 1 to 5 percent of the amount on a paycheck or government benefit check in order to cash it. And many unbanked consumers end up paying again when they need to buy money orders or pay bills in person.

A low-wage worker paid $700 every two weeks, facing a 2 percent check cashing fee, and buying two money orders each month, spends more than $30 per month on financial services.  That means he or she is working nearly an hour each week just to pay the check casher. For many workers, these costs are often even higher.  It’s a slow drip for workers that takes dollars out of every single paycheck, and it adds up to billions of dollars that consumers and families could otherwise spend or save. By simply expanding access to affordable banking services millions of Americans would receive a raise.

Sometimes that slow drip for financial services turns into a catastrophic flood. About two out of every five Americans say that they probably or definitely wouldn’t be able to come up with $2,000 in 30 days to deal with an emergency. That number rises to about two-thirds of lower-income Americans. When faced with financial shortfalls, struggling families may turn to payday lenders for quick cash pledged against the next paycheck, or to auto title lenders who offer cash in exchange for the car title and a spare set of car keys.

These lenders typically charge triple-digit annual interest rates and, not surprisingly, borrowers can’t keep up. Four out of five payday loans is rolled over to a new loan. In Virginia alone, auto title lenders repossessed 13,000 cars in 2012 among borrowers who couldn’t make their payments. In 2007, the Pentagon was so concerned about these loans that they successfully pushed Congress to cap at 36 percent the annual interest rate that can be charged to our troops and their families.  However, bills to extend this cap to everyone have gone nowhere.

Fortunately, many of the solutions to these problems already exist. In its three-year history, the Consumer Financial Protection Bureau has effectively been a new cop on the beat examining the tricks and traps in the financial marketplace. State and local governments have expanded access to affordable, basic bank accounts and pushed for more affordable prepaid cards for payroll and benefits.  Policymakers are now considering whether to build out public banking options, such as offering more banking services through the post office, as many other countries do. In cities like New York, financial empowerment centers that offer free financial counseling now help struggling families make the most of their money and avoid the rip-offs that make it even harder to get ahead.

Not all of these efforts have succeeded, however. Last year, the Chicago Transit Authority (CTA) announced an innovative new product called Ventra: a transit farecard that doubled as a prepaid debit card. In theory, this card could have turned every subway and El station into a banking center. But as designed, it was a high-fee card that guaranteed revenue for the CTA and was a bad deal for consumers. It took public pressure to redesign the card’s features and fees and launch a better product. In the meantime, trust was lost.

Yet the occasional step backward shouldn’t stop policymakers from seeking safer, more affordable, and more convenient ways for low-income Americans to manage and save their money. When every dollar counts, we should make sure families are able to keep the dollars that belong to them.



Safety Net

Black and Brown and Redlined All Over

Home prices have been on the rise for several quarters now but the housing crisis is not nearly over.

Despite the speculator-fueled rise in home prices in some parts of the country, hard-hit neighborhoods are still reeling, as America continues to grapple with the consequences of reckless predatory lending that caused the housing bubble to burst.

The subprime implosion cost more than 10 million Americans their homes through foreclosure. That’s more families than the population of Michigan.

And nearly 10 million households are still underwater—owing more on their mortgages than their homes are worth. Entire cities and neighborhoods have become blighted by plummeting home values, vacant properties, and decrease in tax revenue. The report, “Underwater America: How the So-Called Housing ‘Recovery’ is Bypassing Many Communities” published by UC Berkeley’s Haas Institute for a Fair and Inclusive Society, where I serve as Director, shows that one in ten Americans lives in the 100 hardest hit cities where the number of underwater homeowners range from 22 to 56 percent.

A Baltimore lawsuit estimates the total costs for that city are about $34,199 per foreclosure.  A federal court ruling recently pointed to the wave of municipal bankruptcies as a direct result of the foreclosure crisis.

What’s worse is that unintentionally or not, the history of the housing crisis is deeply linked to past practices of racial discrimination that have been structured into the current credit market. The mortgage crisis has fallen disproportionately on communities of color, wiping away generations of hard-won wealth.

Banks had long excluded low-income, minority areas from loan availability, a practice known as redlining. During the subprime boom we saw a new practice – reverse redlining.  High-cost loans were five times more likely to be made in African American neighborhoods than in white neighborhoods.

The response by the government and the banking community has been grossly inadequate.  The Home Affordable Modification Program (HAMP) and Home Affordable Refinance Program (HARP) programs have been notable, high-profile failures. These programs did not sufficiently incent banks to do what was really necessary to fix this crisis: to modify mortgage principal.

In response, a growing number of cities on both coasts are exploring an unusual response to an unusually difficult problem, with a program they are calling “reverse eminent domain” or local principal reduction.

The city of Richmond, California, voted to enact this program to acquire some of the hardest-to-modify, deeply underwater mortgages, and to then restructure the loans with reduced principal and terms that make the new mortgages affordable and sustainable for the homeowners.

Cities exploring this approach have made clear that they prefer to negotiate a purchase of these loans based on fair market value but they are prepared to use their power of eminent domain to acquire the loans, if necessary, in order to prevent further deterioration of their communities.

The financial industry has responded with threats of a new kind of redlining. The Securities Industry and Financial Markets Association has passed a policy that raises the price of credit for any community that uses eminent domain in order to restructure mortgages for homeowners.

Banks such as Wells Fargo, and institutional investors such as BlackRock and Pimco, sued the City of Richmond—unsuccessfully so far—rather than accept the city of Richmond’s offer to negotiate a solution that works for both homeowners and investors.

What is more surprising is that the Federal Housing Finance Agency—the governmental overseers of Fannie Mae and Freddie Mac—has thus far sided with industry lobbyists and speculators instead of working with cities like Richmond and homeowners looking for relief.

Community groups and the ACLU filed a Freedom of Information Act request and sued the FHFA to uncover the efforts of big bank lobbyists to crush local anti-foreclosure initiatives. One email turned over by the agency shows a bank lobbyist noting with alarm that the only banker on a city task force on eminent domain in Brockton, MA “is also a Past President of the Brockton NAACP.”

Housing advocates applauded the confirmation of former Congressman Mel Watt, long an advocate of fair lending, to lead the FHFA at the beginning of this year. One simple step he could take quickly would be to withdraw the threats to punish communities that pursue a local foreclosure solution that may include the use of eminent domain.

Civil rights laws have been enacted in efforts to overcome disparities among whites and people of color in the credit and housing markets. But the subprime crisis and the response by the banks and federal government thus far will continue to hurt entire communities even as they exacerbate unequal opportunity and outcomes based on race.

To read more about concentrated poverty and discriminatory redlining practices, read Why Brown v Board Was Unsuccessful in Ensuring Equal Educational Outcomes by Richard Rothstein and Concentrated Poverty and The Case for Promise Zones by Tracey Ross


Media and Politics

ICYMI: TalkPoverty Editor Greg Kaufmann on the Melissa Harris-Perry Show

In case you missed it, Greg Kaufmann joined Melissa Harris-Perry to talk about, which provides a platform for those reporting on, living in and fighting against poverty to share their stories. Watch the video:


Safety Net

Deconcentrating Poverty is Route to Quality Schools

As we mark the 60th anniversary of Brown v. Board of Education, we know how poor America’s public school students are.   We also know from the Census and a recent Southern Poverty Foundation report how dramatically poverty among public school students has grown in the past decade. Student poverty makes it incredibly hard to improve student and school performance, given its link to chronic absence, housing instability, difficulty attracting and retaining strong teachers, and insufficient school resources.

In addition to growing poverty, we can see how much ground we have lost since the 1960s and 1970s in desegregating our schools. They’re intensely racially segregated not only in former Jim Crow states like Mississippi, but in New York, which now has the most segregated schools in the entire country—as measured by students’ exposure to peers of other races.

This pattern of concentrating black and Hispanic children in our poorest schools poses major obstacles to the equal access to opportunity that our democracy demands.

What is most critical, however, is how racial and income segregation interact with one another. Indeed, William Julius Wilson’s seminal 1967 book, The Truly Disadvantaged, jumpstarted an entire body of research on this issue. Recently, Richard Rothstein and Patrick Sharkey discussed both neighborhood- and school-level links between segregation, poverty, and related factors that particularly harm black and brown families and children. Their work prompted the Economic Policy Institute and Broader Bolder Approach to Education to explore what that interaction looks like for kids who are starting school now; our new paper uses data from US children who entered kindergarten in the 2010-2011 school year.

Our findings affirm those of Wilson, Rothstein, and Sharkey: due to racial segregation, minority status conveys multiple disadvantages. Chief among them, black and Hispanic kindergartners are disproportionately in schools in which the majority of their peers are poor. (The definition of poverty in this paper is that used by many policymakers to establish eligibility for many government supports – 200% of the federal poverty line, or less than about $37,000 annually for a family of three.

If our kindergarten classrooms were not economically and racially segregated, we would expect most students to be in classes in which about a quarter of their peers were low-income; since overall, about 25 percent of all kindergartners are from low-income households. But in our segregated society classrooms don’t look like that at all: Three in five white students are in classrooms in which just over 10 percent of their classmates are poor. This means that they are likely to be in schools that do not face obstacles like classmates whose lack of preparation demand extra teacher attention, or peers whose hunger and toothaches prompt them to act out and disrupt class. They are less likely to suffer from shuttered school libraries, counselors that must each support 1000 students, or a lack of nurses to treat ordinary and emergency medical needs – things that are increasingly common in low-income and heavily minority schools.

For black and brown students, the story is flipped: Only 11 percent of Hispanic and 7 percent of black students make it into such low-poverty kindergarten classrooms; most are in classrooms in which at least 75 percent of their peers are minorities, and the majority of those peers are poor. More than 56 percent of black students, and more than 55 percent of Hispanic students, enter kindergarten classes in which half of the kids are poor. Moreover, one-third of their classmates do not speak English at home, and the percentage of their peers’ mothers who have at least a bachelor’s degree is in the single digits. Less than 5 percent of white kindergartners attend schools facing these multiple disadvantages.

This pattern of concentrating black and Hispanic children in our poorest schools poses major obstacles to attaining the integrated schools and equal access to opportunity that our democracy demands. Reducing child poverty must be our ultimate goal, but if today’s students are to reap the benefits of schools with a diverse mix of peers, we must immediately enact education policies focused on deconcentrating poverty.

Revamping “choice” to incentivize integration by promoting socioeconomically mixed schools – at the federal, state, and local levels – would be a good start. For example, laws that authorize and evaluate charter schools could make socioeconomic integration a key metric, and districts that encourage choice among schools should also establish integration as a criterion for students who want to move out of their neighborhoods. At least one example suggests it’s good policy all around: students in Chicago’s non-selective magnet schools – which tend to integrate rather than further segregate students – see larger test score gains than their charter school peers.  Finally, the obsessive focus on test scores as a measure not only of student, but of school success, has exacerbated segregation by unfairly weakening and stigmatizing schools. Dialing that pressure back in federal and state policies would also promote integration. Policies such as these would help ensure that all schools are well-resourced, attractive options for parents, and conducive spaces for children to learn.