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How can the poor get rich?

By David McMillin · Bankrate.com
Friday, November 8, 2013
Posted: 4 pm ET

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?

 

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29 Comments
Cathy
November 14, 2013 at 3:05 pm

David: I couldn't help but laugh when I read this. After 35 years in the financial industry I found a pattern that wiped out my savings and put everyone, not just me, everyone I worked with into poverty. Departments were downsized or eliminated all together. Just short of five years (totally vested) we found ourselves "on the street". It takes a long time to replace a job and unemployment only helps. It doesn't last long either. Many moved to be close to family. The same thing happened to my husband in HVAC. We had to close out our retirement accounts several times just to feed our children. Many people in our neighborhood have been put in the same position. The dream you talk about is gone. Ten years ago it was possible, but no more.

Susan
November 14, 2013 at 2:57 pm

I have two children that didn't finish high school, Son owns an A/c company clears 400,000 and daughter is office manager, makes over 100,000. Good work ethics are a plus.

Bernard
November 14, 2013 at 2:45 pm

Welfare keeps people poor.

Don
November 14, 2013 at 1:25 pm

A lifetime of two working from a poverty start, built a good business,closed the corp. and paid dearly for same.FED. TAX ON CORP holdings was based on capital gains 28%, with the corp. tax structure paying the tax on this money over the years, and add to this shalicking, is the state of Vt. appling a 50% on the federal tax. I would like to have invested this kind of money with ALLY Bank (117,000.00) to inhance my retirement. God Bless America, and its tax structure.

Nicole
November 14, 2013 at 1:16 pm

We teach our kids what's important by example. Also people have to stress going to COLLEGE AND NOT JUST (GETTING OUT OF H.S) starting from kindergarten some PEOPLE start talking to there kids about COLLEGE this place that they have to go one day. We have to start at a much younger age drilling it into them. We are certainly capable. The Good Lord make us stronger for a purpose and not just to struggle or to (just get by) Peace & Love !

Mary
November 14, 2013 at 12:48 pm

I agree with KEN. kids have a small fortune all wrapped up in the latest play station games and the cell phones. They need to learn that less is better now and later.

robert
November 14, 2013 at 12:43 pm

help me

ken
November 14, 2013 at 9:45 am

Teach your kids to live on 4 days pay and they will have a much better chance. $ big flat screens, all the cable channels, the latest play station games, the newest cell phone out and eating out multiple times a week may seem nice, but only add to the chains holding them back. Not easy but can simply be done, most of us have had to live on less, just don't spend as much when we make more.

Steve
November 14, 2013 at 9:01 am

I address these issues weekly in my blog. It takes discipline and motivation to get out and stay out of debt. Debts are the heavy chains that help keep poor people poor. Check out my latest post about Emergency Funds:

financialliteracyconversations.wordpress.com

JACK
November 14, 2013 at 8:01 am

We know motivation is a factor, but I believe that we hate to also admit the environment is also a factor. Comments about working hard, savings, etc, might all be true, and there are all anecdotal stories showing the triumph of the individual over the odd. But on average the data shows the opposite. The working poor make up the majority of people on welfare. In other words, the amount of money they bring home isn't enough to live on. There is nothing for savings. These people might be looking for new opportunities, but they have little time to do so. Comparison to past generational mobility must also take into account inflation, the value of a dollar (which is considerably weaker) as well as the economy.

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