Finance Globe

U.S. financial and economic topics from several finance writers.
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Pew Study Shows "Rags-to-Riches" Is Unlikely

The idea that one born poor can work hard and improve their economic position is one that’s been around for decades and is still prevalent. In a Pew Charitable Trusts, poll 40% of Americans said they believe that it’s common for a poor person to work hard and become rich in the United States.

However, research from Pew reveals that not it’s not so easy to move away from the lower income levels and to do so requires a lot more than just hard work. In Pew’s study, it was shown that 43% of Americans raised at the bottom of the income ladder remain there as adults and 70% never make it to middle quintile (the middle of five income groups).

The odds that you’ll experience a rags-to-riches economic transformation are slim. Only 4% of people born in the bottom income quintile will make it to the very top. And just 9% of those born in the lowest income brackets make it to the fourth quintile. Unfortunately, the chances of becoming a high-income earner, when you’ve started as a low-income earner, are low.

Factors Contributing to Upward Mobility

It’s not all dire. The study reveals that there are some factors that improve the odds that you’ll move up among the quintiles. Graduating college, being part of a two-income family, and being continuously employed all play a major part in moving upward from the bottom of the income ladder.

The value of a college education is an ongoing debate, however, the Pew study shows that 86% of college graduates (as opposed to 55% of non-college graduates) move beyond the bottom income quintile.

If you’re thinking about remaining single or about quitting your job to stay at home with the kids, note that 84% of dual-earner families (versus 49% of single-earner families), move away from the bottom.

Conversely, if you don’t graduate college, live in a single income family, and experience unemployment, it’s less likely that you’ll move out of the bottom income level.

Interestingly, race also plays a part in upward mobility. The survey says that 68% of whites left the bottom compared with 45% of blacks. The survey doesn’t give any reason why there’s a disparity among races.

Your parents’ wealth may also impact whether your income level increases. According to the survey, “The parents of those who moved up from the bottom … had almost double the median wealth of the parents of those who remained at the bottom.”

The saying “It takes money to make money” has some truth to it when it comes to improving your economic standing. Having liquid savings, higher wealth, and higher home equity improves the likelihood that one can improve their income level.

Source: Pew Charitable Trusts
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Monday, 14 October 2019

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