It’s not the avocado toast, and it’s not your imagination. It really is more difficult for poor people to get ahead and save money than it is for people who are already wealthy.
The obstacles to financial security and economic mobility seem to be built into the system, and it leaves many trying to find ways to ways to stop living paycheck to paycheck.
Here are nine big ways the economy is rigged against people who are poor.
The U.S. tax code is written to privilege people who have more wealth, in big concepts and little details of the code, and to put the burden of paying taxes on people who earn less.
The code contains rules such as increased deductions for married people, lower taxes on investment income than on earned income, specific deductions allowed for small businesses, and protections and privileges afforded to different business forms.
All these different types of rules penalize people who aren’t married (who are already likely to have less wealth) and people who work for wages but don’t have significant investments in the stock market. Even savings in a regular bank savings account are taxed at a higher rate than investments in the stock market.
Public education funding
Public K-12 education in the United States is funded by local taxes, so schools in wealthier neighborhoods have more money to fund their schools than schools in poorer neighborhoods.
For underfunded districts, this may mean increased class sizes, lower pay for teachers and education professionals, less spent on basic teaching tools including textbooks and supplies, and other obstacles to teaching and learning.
More school funding in wealthier districts may contribute to higher levels of achievement and continuing success for students there.
In essence, this makes the public education system resemble a group of individual private school districts paid for by taxes. The higher the tax base, the better the schools, and vice versa.
A U.S. Census and Internal Revenue Service study showed that the number one factor correlated with eventual success and income level is the wealth level of the neighborhood a child grows up in.
The study showed that the earnings of an adult are tied more to the wealth level of the neighborhood where they grew up as a child than to the wealth level of the neighborhood they lived in as an adult.
Part of this is the access to services and activities — including and especially public schools — as the children are growing up. This means that underfunding schools in poorer neighborhoods makes it that much more difficult for kids growing up in those neighborhoods to get out of poverty.
Redlining is the practice of limiting which neighborhoods a person is allowed to buy a house in by some demographic factor, either officially or unofficially, by refusing to give loans to buy property in certain areas.
Redlining over the last two centuries has formed the neighborhoods of many American cities and has created rich neighborhoods and poor neighborhoods within those cities.
This strict division of communities creates imbalances and prevents social and economic mobility. It also directly causes problems such as the imbalance of funding of public schools and even air pollution inequality that causes more health problems for poor people.
Redlining has caused poor neighborhoods and prevents poor people from becoming economically mobile.
Stagnation of real wages
The minimum wage has been held down since 2009, and this has led to stagnation of all wages except those at the very top few percent.
While wages have stagnated, the cost of living has increased at a normal rate. Consequently, people can afford less because they are making less than the increase in prices of necessary goods and services.
Additionally, wages have stagnated more severely for people being paid the least. People who earn more than 90% of all workers have seen their wages go up proportionately more than people earning more than only 10% of workers.
This means that the lowest earners earn even less in real money compared to high earners than they did 40 years ago, but expenses continue to rise for everyone.
When the cost of basic items for living, including food, gas, utilities, and rent, go up, this affects poorer people disproportionately.
Wealthier people spend less of their income on these basics, so the increases in price don’t impact their total costs and wealth as much as they affect poorer people, who are often spending as much on basics as they earn, and are living paycheck to paycheck.
Normal inflation can keep poorer people on the edge financially, but increased inflation — like we’re seeing now — can throw people into severe poverty as the price of necessary goods and services increases.
Tax breaks for big box retailers
Many communities, especially poorer communities, offer tax breaks for big box retailers to come and build a store in the community. The idea is that this will provide residents with shopping alternatives.
The real effect is loss of tax revenue for the local community, lower-paying jobs than those created by local businesses, and less money spent at these big box retailers going back into the local community.
Big box retail locations tend to impoverish a municipality, which is why wealthier communities focus more on building local businesses than on giving incentives to attract big box retailers.
Public office costs
Only wealthy people can run for and serve in public office in many areas. America has no public campaign funding or campaign funding limits, so to be able to run for office in the first place, a candidate needs to have significant personal wealth and a base of donors who can donate large amounts of money to fund a winning campaign.
And many first-step public offices — school boards, city councils, and county or state legislature positions — pay such a low wage that those elected need to have other jobs or independent funding to be able to live while serving in those positions.
This creates an echo chamber of politicians who are skewed toward older, married, white men who own businesses, across all political parties. Consequently, the government is not representative of the population it is supposed to represent.
Lack of services
Poorer neighborhoods have less access to public transportation than do wealthier neighborhoods, and poor neighborhoods are less likely to have necessary services within walking distance.
Poorer neighborhoods are also more likely to suffer blackouts and brownouts of electricity during extreme weather conditions than are wealthier areas. Poor neighborhoods are more likely to be classified as food deserts, which is an area with reduced access to affordable healthy foods.
Hate The Pain At The Pump? You Need This 5 Step Checklist ASAP
So much of the messaging focused on poor people, especially Gen X and millennials who are lagging in earnings and savings, is focused on small individual actions they should take, like finding legitimate ways to make extra cash.
But the bigger picture is that the economy and many of our systems within the economy are structured to make it difficult for poor people just to exist, let alone to become mobile enough to reach middle-class status.
People who don’t have access to services and wages because of the areas they live in are unlikely to have the space and support necessary to begin accruing wealth.
Rocket Money Benefits
- Automatically find and cancel subscriptions
- Slash your monthly phone, cable, and internet bills
- Save an average of up to $720 a year