Lack of Capital
Lack of capital makes it exponentially more difficult to climb the economic ladder out of poverty. Wealth begets wealth. Having the financial luxury to invest, pay large down payments and avoid high interest and loan costs, move to neighborhoods with good schools and infrastructures, translate directly into a much greater ability to succeed financially.
Consider the price of a car. If a person is fairly wealthy, she might purchase the car outright and pay for the car once. For the less wealthy person with substantial collateral and a good credit rating, she can likely get a loan with a reasonable interest rate. For the poor person without substantial collateral and a credit rating that may reflect significant debt, she may or may not get the loan at all, and if she does, the loan will have a much higher interest rate. The difference in cost is significant:
- Buying a used car outright: $7,500
- Buying a used car with a $7,500, 36-month loan with a good credit score: $7,903
- Buying a used car with a $7,500, 36-month loan with a poor credit score: $9.626
A person with poor credit will pay $1,723 or 527% more in interest repayment than someone with good credit. That same person will pay $2126 or almost a third more than the person who had sufficient savings to pay for the car outright.1
Policies and tax preferences favor the wealthy
Policies that shape the United States’ financial landscape are strongly influenced by wealthy Americans. Recent research has shown that senators’ roll-call votes and federal government policy more closely correspond with the preferences of Americans in the top 1/3rd of income distribution than with those in the bottom 2/3rds.2 A 2013 article reported that the political views of the top American wealth-holders were “more conservative than the American public as a whole with respect to important policies concerning taxation, economic regulation and especially social welfare programs.”3 The result is that the poor stay poor. In fact, the gap between the rich and the poor has never been higher in the history of the United States.4 An increased wealth gap makes it harder for people to move out of poverty.5
Livable Wage
Another cause of generational poverty and poverty in general is the lack of livable wage for many jobs. According to research, the lack of a livable wage is one of the largest obstacles families on welfare face.6 Without a livable wage, earners are trapped in a day-to-day struggle. With no money in the present, they cannot plan for the future.
A livable wage is enough to support the earner and her or his family the “most basic costs of living without need for government support or poverty programs.”7
Sources 1www.carpaymentcalculator.net/calcs/bad-credit.php 2Gilens, Martin, 2012. Affluence and Influence: Economic Inequality and Political Power in America and Bartels, Larry M. 2008 Unequal Democracy: The Political Economy of the New Gilded Age. 3Benjamin I. Page, Larry M. Bartels, and Jason Seawright, “Democracy and the Policy Preferences of Wealthy Americans”http://faculty.wcas.northwestern.edu/~jnd260/cab/CAB2012%20-%20Page1.pdf 4 For a compelling illustrated video on wealth inequality in the U.S. that has gone viral: www.youtube.com/watch?v=QPKKQnijnsM. 5 Corak, Miles. 2013. Inequality from Generation to Generation: The United States in Comparison. In The Economics of Inequality, Poverty, and Discrimination in the 21st Century, ed. Robert Rycroft, pp. 107-26. Santa Barbara: ABC-CLIO. 6 Iceland, John. 2006. Poverty in America: A Handbook. Berkeley: University of California Press, page 78. 7 Living Wage Action Coalition “What’s a Living Wage?” <http://www.livingwageaction.org/resources_lw.htm>