You’ve heard the story plenty of times. Born into poverty, a person works hard, overcomes obstacles and finds his or her way to personal finance success. It’s the classic American dream. However, how often does it actually come true?
Unfortunately, the findings from a new study from The Pew Charitable Trusts, a nonprofit organization working to improve public policy, indicate that the rags-to-riches story may belong in the fiction aisle for the majority of poor Americans. Using data from families between 1968 to the present, the research reveals that 70 percent of children who are born into lower-class conditions never even make it to the middle class, let alone the upper tier of society. The research also underscores a continuing racial disparity in the country. Whites are twice as likely as blacks to leave the bottom rung of the ladder.
These findings are troubling, but the research does highlight which factors can make an individual’s personal-finance situation more promising. Earning a college degree and being part of a dual-earning family increase the likelihood of moving up from the bottom.
There is another very important piece of the American-dream equation. The report points out that individuals who did leave the bottom of the economic ladder had six times higher median liquid savings. Consider this statistic: Someone with $10,000 in liquid savings is 5.5 times more likely to move to the middle class than someone with just $1,000 in liquid savings.
I realize the challenge that this presents. When someone has very little money, it’s not easy to put much of that away for the future. However, there are small steps that can add up toward big payoffs down the road. Rather than working to figure out how to earn more immediately, it’s wise to determine how to spend less. Reducing expenses is a simple method to saving more.
What do you think of the research? Do you think the American dream can become a reality for poor citizens?