Generations Ahead: Building Lasting Economic Equity Through Income and Wealth
By: Anne Price and Jhumpa Bhattacharya
While much has been discussed in the past several years about ways in which to close racial income inequities or build wealth for people of color, the idea of combining the two has not yet permeated mainstream economics or philanthropy. The Insight Center posits that rather than looking at these two sides of the same coin as discrete, we should be prioritizing programs that contribute to both. We see these inequities as in need of a “yes, and” approach, not an “either/or.”
While we see value in testing ideas such as baby bonds, we cannot wait a generation for such a policy to bear fruit. This is particularly true to address the unique economic stressors faced by millennials, who have now experienced two major recessions during their prime earning years — making them the first generation to fare worse economically than those before them. And due to systemic racism and sexism within our economy, women and Black millennials face the biggest hurdles:
- While the typical white millennial household has about $88,000 in wealth, the typical Black millennial family has only about $5,000 in wealth.
- While white millennials trail the wealth of previous generations of white Americans by only 5%, Black millennials trail previous generations of Black Americans by 52%. The typical Black millennial has $5,700 less in net worth than counterparts in previous generations.
- Black women with a college degree who are under the age of 40 essentially have no wealth.
Wealth is needed to have a steady foundation to build and dream from, to fall back on in case of emergencies, and to secure opportunities such as paying for college or buying a home. A steady source of income is required to sustain daily life. We must combine the two in order for people to reach true economic security. Fortunately, the influx of guaranteed income projects across the country already offers us many ways to test this idea. While GI has been proven to reduce income volatility and increase financial stability, it is not a wealth-building mechanism in and of itself. Our proposition is to turn it into one, by adding a large lump-sum payment to a guaranteed income program.
To ensure families have access to wealth-building opportunities now and not just in the future, we propose the creation of Generations Ahead — a pilot that will utilize an existing targeted guaranteed income program to layer a wealth-building component onto. We also see the benefits of testing out longer-term programs, so propose the following:
- 75% of funding going toward providing participants in an existing guaranteed income program with $25,000 in seed capital for wealth building activities at the conclusion of their GI payments. Participants will be offered access to a set of financial advisors to inform their investment strategies such as putting a down payment on a home, acquiring land, starting, or expanding a business, investing in mutual funds and exchange-traded funds, financing a college/graduate degree for themselves or for their children, contributing to retirement savings, or for paying off student, medical or criminal debt. The choice is theirs.
- 25% of funding going to an existing guaranteed income program that concludes with a $25,000 young adult trust/”baby bond” targeted at children whose parents receive a guaranteed income. A type of “Social Security for young adults,” who need it the most, we believe young adult trusts are the best vehicle to address racial wealth inequality as it addresses the barriers placed on Black and brown communities to pass wealth down from one generation to the next, often referred to as intergenerational wealth transfer.
The route to building wealth is not about savings, but more about the capacity to invest in an asset through money given by parents and grandparents. The most significant predictor of the future financial success of a child is the wealth level of his/her parents. For Black families, it has never been easy to build assets of any type because of low levels of intergenerational wealth transfers. If we are committed to tackling racial wealth inequities, we need to chip away at the root causes of the inequities in the first place — ending mass incarceration and addressing crippling fines and fees which strip and prevent wealth accumulation; and addressing labor laws and labor standards that dehumanize and extract resources from families, locking them out of wealth building opportunities.
And as we change those systems, we must also address their inequitable results — preventing Black and brown families from amassing wealth and earning equitable wages. We believe now is the time to evolve the guaranteed income space into its next iteration, which can and should incorporate wealth-building initiatives.