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Vivian and Kathryn

There’s nothin’ I can do about it…. Maybe I might meet a millionaire or somethin’, you know, but I doubt that very seriously. I wish that I wasn’t in a lot of debt, though, because I had got
out of debt, and now I’m back in debt.

Vivian Arrora, 40 years old, is the struggling single mother of a young teenage son, Lamar, and 4-year-old twin girls, Bria and Brittany. Vivian, who is African American, grew up in Watts, which is one of the poorest sections of Los Angeles and where about one in every three families falls below the government’s poverty line. Several moves have inched her family away from this poverty-stricken black community toward more middle-class West L.A. She tells me she has been attacked and raped several times. With tenacity and determination, she has bootstrapped her family and, as she says, “branched further west, out of a gang-infested area, a drug area.” She dreams of owning a house in “peaceful” and middle-class Culver City.

“After I gave birth to the twins, I was just ready to go to work because just receiving AFDC [welfare] just wasn’t the thing to do,” Vivian begins, “and all my life I’ve been receiving AFDc=” She took vocational classes at a technical school because she “wanted to learn how to do the computer.” She completed the program and earned her certificate, acquiring substantial student loans along the way.

The next step was to find a job. “I was out lookin’ for a job, and it seemed like nobody wanted to hire me and I got kind of discouraged, and I just kept lookin’, I just kept lookin’.” A friend then suggested going to a temporary agency.

We went to the temp agency on a Wednesday. It was raining, and we just kept on. We kept on going, and the rain didn’t stop us…. I went in on a Wednesday, and they called me that Thursday
and told me to start work that Monday. And I’ve been working ever since. And I’m like: Am I really, really ready to go to work? Mentally? But once I started, I just, I’ve been on a roll ever

All this occurred two years before we talked. Vivian worked as a temp for a year and then was hired by the county to work full-time, with some medical benefits, processing adoption papers. She is proud of having worked herself off AFDC, declaring, “I’m worth more than 700 dollars a month. I’m worth more than that!” But this clerical work does not pay much—a tad under $20,000 per year, which is about $500 above the official poverty line for her family of four. She may be a poster girl for welfare reform because she successfully transitioned off welfare, but she has joined the swelling ranks of the working poor.

Vivian’s job is very important because it provides skills, habits, stability, and self-worth that she said had not existed before, but she still is very concerned about crime and safety where they live and wants to move into a better place, even own her own home someday. Working hard and bootstrapping her family off welfare has neither lifted her out of poverty nor put the American Dream within her reach. I asked her how she found the neighborhood and apartment where she is living now; her answer reminds us of the fragile and precarious living situations of those without safety nets. She was forced out of her last place with 30 days’ notice, and the family just

landed right here. This is not where I really wanted to be, but I was tired when I was looking because I was working full-time, and by the time I got off it was too late to go look, you know,
to be out at night, in there with the kids, nobody to baby-sit, so I have to come home and cook. It’s just me. I don’t really like the surroundings. I don’t like the traffic over here either. Sometimes
when I come home I see a lot of guys, they hang out down here at the corner.

She would like to buy a home in a safer neighborhood for Lamar and the twin girls. It would be the next step up on her mobility ladder because it would solidify her present stability and provide improved services for her family and better schools for her children. She faces serious obstacles. She has lots of debt and ruined credit. She does not seem to have the resources or capabilities to work out of her debt trap, at least not on poverty-level wages. Nonetheless, she is thinking about buying a home through a funding program that requires education, training, and clearing her credit. She wonders how she can find the time to do all this while working full-time, because it would mean finding costly day care for Bria and Brittany.

A modest, even small, amount of assets, together with day care provision, would make a huge difference in securing a better future for this resolute full-time working woman and stabilizing this family’s mobility up from poverty. For example, if she had assets put aside, Vivian could acquire job skills and training, and these enhanced skills in turn might well lead to a better-paying job. In the view of mortgage lenders, difficulty in getting out of debt reveals a high credit risk, so if she could get out of debt, she would be in a better position to consider seriously buying a home. Vivian’s story gives us glimpses of the kind of life that so many others like her live. Her struggles anchor a starting point regarding some broader asset themes of this book. Poverty is not merely the lack of adequate income for daily needs and survival; for the Arrora family it means difficulties around community, housing, crime and safety, debt, environment, child care, and schools. While it is no doubt true that there are some people whom no amount of assets could help, because of handicaps or inclination, given how far she has taken the family already, I firmly believe that Vivian Arrora’s family is poised for mobility and self-reliance. Lack of assets holds her back.

Kathryn MacDonald, like Vivian, is in her 40s and earning a salary close to the poverty line. She too is a single mother, but her life struggle tells a very different story. Kathryn works about 30 hours a week as a freelance contractor in publishing, earning approximately $16,000 a year. Her boyfriend left her just before her son, Evan, was born and she has raised him alone. She prefers to work part-time so she can spend part of her day with Evan, who she says has attention deficit disorder. According to her this was a major reason why she moved from New Jersey to St. Louis in 1995.

Kathryn and Evan MacDonald live in Florissant, a traditionally working-class and middle-income community in north St. Louis County. Kathryn worked at a large publishing house in Manhattan before moving. She grew weary of the city’s frantic work pace, expensive New Jersey housing, and spending so much time away from her son, so they moved. Now Kathryn does the same work in her St. Louis home that she used to do in a Manhattan skyscraper, matching Library of Congress book subject headings to subject titles for publishers. Freelancing half-time at home allows her to spend much more time with Evan and to watch over his educational and social development. She also enjoys the freedom and autonomy of working at home. Kathryn earns a lot less than when she worked full-time in New York, but she is far happier with her life now, even if her earnings only amount to poverty wages. She likes the community and schools, which are largely white.

Kathryn clearly is pleased that things have worked out so well.

We’re in a good neighborhood. My son can go out to play and I don’t have to worry about what he’s going to get into or who he is going to be encountering. I don’t have to worry about him being
abducted…. I don’t have to worry too much about drive-by shootings. I don’t have to worry that something terrible is going to happen to him just because he was out on the street.

Kathryn is especially pleased with Evan’s school situation. Evan is smart, just a notch below getting into gifted programs, and the system has special programs for bright kids like him. The school also has understanding and knowledgeable teachers working in small-group settings who can help him overcome his ADD.

Normally, $16,000 does not afford a great deal more than what Kathryn calls “life support,” much less the kinds of services and opportunities available in middle-class communities. What makes Kathryn’s life so different from Vivian Arrora’s? How is she able to live on essentially poverty wages and yet plan for a future that looks to have better prospects? How is she able to live in a place that is safe for herself and Evan? How is Kathryn able to find a school where Evan can thrive? It is not as simple as that one is white and the other is black. The answer is transformative assets.

For one thing, Kathryn is free of debt. Her brother has been sending $100 a month for several years to help her out with Evan’s educational and day care expenses. She lost a job several years ago, when Evan was 2, but was able to move in with her father for five years. She has no school loans because her family paid her college bills. Even today, unlike the average American, she does not owe any credit card debt.

But her financial stability goes far beyond just lack of debt, Kathryn explains. She has inherited money from her family.

I have the proceeds from my father’s estate, and also my grandmother. I don’t even pretend to understand this—my cousin the lawyer handles all this—but if her estate gets to a certain size, she is liable for more estate taxes, so every so often he has to disburse some of that money.

Kathryn tells us that she has already inherited about $125,000, of which about $90,000 remains, and will inherit another $80,000 when her 94-year-old grandmother passes away. “That could be when I buy a house. That could be what pushes me over the top. With that plus with the mortgage I could get, I could get something decent.” She hopes to buy a home with her new boyfriend, who will not be able to contribute much because he pays alimony to a first wife.

When her father died, “the first thing I did was take some money out, and we took a vacation.” When another chunk of money came from her grandmother’s estate, she and Evan took off to a family wedding in Alaska. She dips into the inheritance every few months as bills mount up, especially when her quarterly estimated income tax is due. She is looking into magnet schools and even private schooling for Evan, in case the local public schools cannot continue to meet his special needs and provide an environment in which he can thrive.

If Kathryn MacDonald did not have assets, one might think of her in an entirely different light, and many questions might arise. For instance: What is she doing to better herself? Why is she not working full-time? Why are her ambitions so low? If she were black, the questions might have a harsher tone, and we can imagine the social condemnation and scorn this single mom might face. Although one might question some of Kathryn’s choices, her story is an example of how financial inheritance can provide advantages and a head start in life. Maybe even more important for Kathryn MacDonald, assets supply an anchor for her family’s middle-class status and identity that her work and income cannot.

Vivian Arrora’s and Kathryn MacDonald’s stories provide a concrete starting point for considering how racial inequality is passed from one generation to the next. In many ways they are so alike; yet in many other ways their lives are so different. Vivian’s legacy is growing up black in a welfare family in Watts and becoming a single mother herself. She is the first in her family to go to college. The big issues for her are work, debt and bad credit, finding time for the kids, the fear of violence, drugs, and gangs, and figuring out a way to buy a home in a stable and safer community. Hers is a remarkable success story, but her mobility from welfare to working poor may have reached its own limit. Her children go to weak urban schools where getting ahead is a difficult task accomplished only by a few. Lamar, Bria, and Brittany will inherit America’s lack of commitment to equal education for all.

Kathryn’s situation, if not her accomplishments, is very different. She does not worry about drugs, violence, and gangs, the adequacy of the public schools, or finding time to spend with her child. Her upper-middle-class inheritance includes a debt-free present, a substantial amount of assets, and palpable prospects of inheriting considerably more in the near future. Her inheritance, one could argue, includes class standing that sustains her comfortable and respectable middle-class situation. In looking at these legacies and inheritances, we begin to see that family assets are more than mere money; they also provide a pathway for handing down racial legacies from generation to generation.

Finally, Vivian’s greatest dream is to own a home in a safe place with decent schools for her kids. As far as I can tell, this is not likely to happen, unless she actually meets and marries her millionaire—or unless a bold and imaginative policy helps to make her hard work pay off. Kathryn’s dream home most likely will become a reality after her grandmother passes away. The lives and opportunities of their children already are being acted out upon different stages, and the gulf between Evan and Lamar is likely to widen further. What the two boys make of their lives from these different starting points will be their own doing, but let us not delude ourselves that Kathryn and Evan and Vivian, Lamar, and the twins share even remotely similar opportunities.

The Ackerman Family

This is a step up from our starter home. We looked at the city, and the bottom line was we weren’t happy with the schools. We wanted to be in a public school in the county. The benefits. The tax benefit; the ownership and not having a neighbor right on your next wall; privacy. We didn’t end up here, we chose to be here. We were definitely trying to buy our life house.

Chris and Peter Ackerman and their three children are middle-class residents of south suburban St. Louis. Chris is a plant accounting manager, and Peter is a technical service manager; together their incomes top $80,000. Through “working and saving, working and saving” they have built their net worth to more than $100,000. As is true for most American families, their largest pool of wealth is their home equity, accounting for about $67,000 of their assets. They also own about $60,000 in various retirement programs, which, as they note, carry heavy tax and withdrawal penalties if used before retirement.

In our conversation, Chris and Peter express a keen sense of economic security and the firm belief that their children have a bright future: Because they both work for a large organization that promises to pay college tuition for long-standing employees, they will not have to dip into their assets or take out loans for college. Like most Americans, they believe their assets put them right in the middle of the wealth distribution, but when I tell them they own more than most Americans, Chris remarks, “Good.”

Because these college graduates come from middle class families, are not burdened with student loans, and are good credit risks, they were able to get a mortgage for a classic starter home. Peter’s parents helped with the down payment, which allowed them to buy in the community of their choosing. As with many families, the increased property value in their starter home provided a sizable portion of the down payment when they moved up to their present suburban home.

It was a pivotal moment for them, as it is for many American families. With three children reaching school age, the Ackermans’ space, community, and schooling needs were changing and growing. The flexibility families with assets have at these times sorts them and their children onto different life trajectories from those without assets. Chris begins explaining how they approached these important issues.

I had cousins growing up in the city, and—this is my own blood, but basically they turned out really trashy. Their friends were trashy. [I] did not even want sometimes to bring my own children around my cousins, because their lifestyles were different, their values were different. Things that were important to us were not important to them.

Peter talks about those things that were important to them.

It seemed like the areas we could afford in the city, the neighborhoods were different. One street would be really nice, clean-kept houses, and two streets over there would be boarded-up houses or just really trashy houses. And we just thought, the mix of the group and then all of these people going to the same school, it did not fit with what we wanted for our family.

The Ackermans wanted to live in a community where more people were like them and had the same standards. Community for Chris also means a place where

you are intertwined, with “Hi, Martha” in the store. You see her in the store. Okay, then you go to day care that morning and you see her and her kids, and you say, “Hi, little Timmy,” or, “Hi, little Johnny,” and then you are out on the street and they have got their little lemonade stand or whatever.

Peter and Chris bought a home in a suburban part of St. Louis where nearly everybody owns a home built since the 1950s and families have similar incomes, in the $60,000 to $80,000 range. The community they chose is almost all white; less than one percent blacks and Hispanics live in their zip code. When I ask about the diversity of their community, Peter explains:

It is unfortunate that it is bound by race too. As far as I am concerned, that has nothing to do with it [lack of diversity]. I think it’s economic because it’s the same issue we dealt with when we lived in the city. It didn’t matter if our neighbors were white or black, as long as they had the same standards we had.

The Ackermans’ assets—help with the down payment, no college loans, and especially the equity built up from their starter home—along with stable jobs and high-quality benefits allow them to own a home in the suburban community of their choice, one up to their “standards,” and to select the kind of schools they want for their kids. Most middle-class families with school-age children face similar school, community, and space issues. Of all the options available to Peter and Chris Ackerman, they chose a segregated suburb and segregated schools. And in later chapters we will see the kinds of strong incentives built into home-owning markets and public policies that reward their choices.

“Worlds Away”

Elizabeth Wainwright Cummings works part-time as an accountant; her husband teaches in the same city schools that drove the Ackermans to the suburbs. Their incomes do not cover their expenses, which include a mortgage on a large, historic home, day care for 4-year-old Anna, and exclusive schooling and private tutoring for 9-year-old Alexander. Their incomes are supplemented by $30,000 a year in interest from an inheritance, and her parents are paying the private school bills. She explains that the family money goes way, way back—it is money her father inherited—and it will last a long time. She already has inherited about $350,000, with “more than a million dollars sitting there with my name on it.” Their home is in a suburban school district that she feels is not strong. This didn’t matter, she explains, because “we knew we weren’t using the school district.” Her comment is a good example of a privatized notion of citizenship: Since she can use ample family wealth for her own benefit, she does not have to worry about or invest in the public infrastructure that would help everyone.

Although, “once we are inside our house, we love it,” she is wary of her largely middle-class neighborhood, because not all the homes look like hers and some of her neighbors are still at early points in their careers. Elizabeth is planning to move to an upper-class neighborhood that fits her class identity better and where she is more comfortable with the neighbors. As she puts it, she has her “eye on this area really close to our house but worlds away.”

Perhaps because she comes from a family that has handed down money for generations, Elizabeth is conscious of how wealth confers privileges and advantages. At the end of our conversation, I say that I have just one last, big, complex question: How do you feel that wealth has impacted your life?

No question about it. I mean, if my parents hadn’t had the money to send my kids to [the private] Hills School, we couldn’t have considered it. We would have had to really do belt tightening, and financial aid, and many more loans, more mortgages. It would have been very difficult and a real strain on us, especially with two. And we probably would have felt like we just couldn’t swing it as a family. So, I don’t know, I would have had to have gone out and gotten a job that would pay enough to justify two kids in private school. With that, it would have meant not being able to mother them as much myself. Or my husband having to change work, and all the soul-searching that would have meant for him. It’s unimaginable. I can’t envision a path that we would have been able to so comfortably just sail on over to Hills School. And, yeah, [we would have had to] go through a lot of heart-wrenching decisions about Alexander [school and tutors]. But they never had to do with money. None of these decisions have had to do with money. I can’t imagine it being any other way.

The world that Elizabeth has trouble imagining includes difficulty paying a mortgage out of earnings, working full-time, working at a job you may not like, public school, family budgeting and making choices, and worrying about money issues. The world she cannot imagine is reality for most Americans. The Cummings family is a possibly excessive but nonetheless illustrative example of how a reservoir of wealth and expected inheritance opens the door to all opportunities and can make dreams come true more easily.

Families and Safety Nets

Let us ask a question of the four families we have met thus far that penetrates further the ways in which assets matter. What if these families lost their jobs? Vivian Arrora has nothing to fall back on and might well find herself back on welfare or worse. The consequences for Kathryn and Evan MacDonald, on the other hand, would be less catastrophic. She could sustain her present lifestyle for several years while progressively drawing more money from her inherited assets. Soon, however, if they were not replenished from other expected inheritances, she would need to tap her assets for everyday living. Without a full-time or higher-paying job, she would have to postpone becoming a homeowner. The Ackermans’ financial assets provide a resource cushion that can absorb economic shocks and personal misfortune. They could survive on their nest egg for some time, but it would mean scaling back the lifestyle they treasure—fewer vacations, giving up their boat—and even then they could not endure a prolonged absence of income. More important, their resources secure a desired status for them and educational opportunities for their children. The wealthy Cummings family probably would not notice the financial impact for a long time because the interest on Elizabeth’s inheritance alone gives them more money than Vivian Arrora earns working a full-time job.

The stories of these four families introduce themes that I will weave throughout the text. I want to use the cases just presented to expand the idea of transformative assets. Wealth is critical to a family’s class standing, social status, whether they own or rent housing, the kind of community they live in, and the quality of their children’s schools. Based upon a thorough familiarity with the textured lives of the families we interviewed, I suggest that it is possible to distinguish whether a family’s current position and life trajectory is based upon earnings and achievements, or wealth and family legacies, or some combination. The notion of transformative assets is most trenchant for our purposes when the financial resources that make current status possible are inherited in some fashion. In the families we have heard about already, Kathryn MacDonald provides the clearest example of the power of inherited assets to transform her current position far beyond what she earns. The Cummings family illustrates the old-fashioned and better-understood notion of very wealthy families handing down resources. The Ackerman case is not so clear-cut. They enjoyed a head start because their families paid the college bills, and they received family financial assistance on their first home. At the same time, the Ackermans’ assets also represent the fruits of savings and investments based upon their earned achievements in the workplace. Vivian Arrora works as hard as anyone in these four families—and has the least to show for it. Lack of assets, much less family money, caps her family’s mobility.

These four accounts highlight the role that assets—or lack of them—play in a family’s quest for well-being and promoting opportunities for their children. When asked to name the primary benefit of money, 87 percent of affluent baby boomers in one survey answered, “It enables you to give advantages to your children.”

American families are in the process of passing along a $9 trillion legacy from one generation to the next. This is a lot of money, but it is distributed very unevenly. Most whites do not inherit considerable wealth; an even smaller percentage of African Americans benefit. Hand in hand with this money, I submit, what is really being handed down from generation to generation is the profound legacy of reproducing racial inequality. This legacy will be difficult to discern because the language of family heritage hides it from our political consciousness. Mainstream sociological theory sees differences in jobs, skills, and education as the primary causes of inequality, and substantial wealth transfers embarrass this theory. The classical sociologist Emil Durk­heim, for example, predicted that family inheritances would decline over time in favor of giving to charitable and nonprofit organizations, but studies examining actual bequests invalidate this prediction.1 Andrew Carnegie’s belief that giving relatives money only makes them lazy (a belief he put into action) may correspond with this perspective, but the empirical evidence tells a different story. In 1989 charitable bequests constituted less than 10 percent of proceeds of estates valued over $600,000 in the United States.2 Even Karl Marx was more con­cerned with production and the circulation of money than with property and family legacies.

The Asset Perspective

A core part of my argument is that wealth, as distinct from income, offers the key to understanding racial stratification. Thus a wealth perspective provides a fresh way to examine the “playing field.” Indeed, I believe that this perspective challenges a standard part of the American credo—that similar accomplishments result in roughly equal rewards—which needs serious reexamination. First, however, I need to outline this wealth perspective and why I believe it is so important.

By wealth I mean the total value of things families own minus their debts. Income, on the other hand, includes earnings from work, interest and dividends, pensions, and transfer payments. The distinction between wealth and income is significant because one signifies ownership and control of resources and the other represents salary or its replacement. However, the difference between the two is often muddled in the public mind, and only recently have the social sciences begun to treat wealth as an intrinsically important indicator of family well-being that is quite different from income. Another perspective on advantage and disadvantage emerges when wealth is used as an indicator of racial inequality. Wealth represents a more permanent capacity to secure advantages in both the short and long term, and it is transferred across generations. Income data is collected regularly, and vast stores of it exist. In contrast, wealth data has not been collected systematically, and issues such as how to value a home, how to view home equity, whether retirement plans should be counted, and how to value a business make it harder to measure.

Wealth has been a neglected dimension of the social sciences’ concern with the economic and social status of Americans in general and racial minorities in particular. We have been much more comfortable describing and analyzing occupational, educational, and income in­equality than examining the economic foundation of a capitalist society, “private property.” When wealth surveys became available in the mid-1980s, journalists and social scientists began to pay more attention to the issue of wealth. The growing concentration of wealth at the top and the growing racial wealth gap have become important public policy issues that undergird many political debates but, unfortunately, not many policy discussions.3

Social scientists typically analyze racial inequality as imbalances in the distribution of power, economic resources, and opportunities. Most research on racial inequality has focused on the economic dimension. This economic component has emphasized jobs and wages. Until very recently, the social sciences and the policy arena neglected the effect of wealth disparity and inheritance on the differing opportunities and well-being of white and black families. We are suggesting that wealth motivates much of what Americans do, grounds their life chances, and provides enduring advantages and disadvantages across generations. Wealth ownership is the single dimension on which whites and blacks are most persistently unequal.4

Our understanding of racial inequality comes typically from data on income. Primarily this represents earnings from work, but it also includes social assistance and pensions. Income is a tidy and valuable gauge of present inequality. Indeed, a very strong case can be made that reducing racial discrimination in the workplace has resulted in narrowing the hourly wage gap between whites and racial minorities.5 Reducing discrimination in jobs, promotion, and pay is an effective way to narrow racial inequality. The average American family uses income for food, shelter, clothing, and other necessities. Wealth is different, and I will argue that it is used differently than income. Wealth is what families own, a storehouse of resources. Wealth signifies a command over financial resources that when combined with income can produce the opportunity to secure the “good life” in whatever form is needed—education, business, training, justice, health, comfort, and so on. In this sense wealth is a special form of money not usually used to purchase milk and shoes or other life necessities. More often it is used to create opportunities, secure a desired stature and standard of living, or pass class status along to one’s children. It is obvious that the positions of two families with the same income but widely different wealth assets are not identical, and it is time for us to take this into account in public policy.

The importance of wealth was borne out in the stories we heard from families about how they think about assets, how they strategize about acquiring wealth, how they plan to use assets, and how they actually use them. I want to emphasize that families consider income and wealth very differently so that wealth is seen as a special kind of money. We asked families directly if they treated wealth differently than income. The pattern of answers is resoundingly affirmative, especially among families with ample assets. Kathryn MacDonald summed it up succinctly by saying, “Income supplies life support, assets provide opportunities.” A middle-class Bostonian put it this way: “My income is limited. My assets I want to hang on to for future needs.” Jen Doucette of Los Angeles, whom we will meet in Chapter 2, captured the thinking of many we interviewed when she said that wealth “is definitely long term. We act as if it’s not even there.” Another person added, “We figure like the income is what we got to work with. Try and live within it.” We asked one Boston family if they ever used assets for expenses, and the answer was a Benjamin Franklinesque scolding: “Absolutely not. We are New Englanders. Never touch principal…. To me income is to pay bills; assets are to keep.”

The way that families with few financial assets replied to questions about the role assets play in their plans to get ahead clearly indicates class differences. Some scoffed or simply laughed at the question because they have no assets to distinguish from income. Even among those with small amounts, though, assets are viewed as resources not to be touched so that they can face emergencies. In fact, we heard the words “emergencies,” “unexpected,” “rainy day,” and “cushion” more often from families who have few or no assets than from families with more. These families view their limited assets as cushions or safety nets against unexpected events like paying for a child’s orthodontic work that is not covered on the family health policy or family crises like helping a recently unemployed sister pay her rent, not as tools of opportunity. Working-class and poor families use wealth for life support, to cushion bad times, and to meet emergencies. Middle-class families, in contrast, use their assets to provide better opportunities that advantage them. In our conversations about the power of assets, working-class and asset-poor families dream that assets will give them freedom from a situation, ease a difficulty, relieve a fear, or overcome a hardship. Middle-class and asset-wealthy families see assets as power and freedom to leverage opportunities.

I have made much of the distinction between income and wealth, but this would only be an academic distinction if the two were highly correlated, that is, if a family’s income were a reliable predictor of its wealth, and if savings were the primary source of wealth accumulation. If this were the case, we could continue to tell the income story as a sort of proxy for all resources, as we have in the past. If they are not powerfully correlated, however, fusing them prevents us from addressing an important basis of racial inequality, the increasing concentration of wealth, and public policies that mitigate the consequences of such inequalities. Sociologist Lisa Keister’s Wealth in America reviews this issue and concludes that the correlation between income and wealth is weak. This suggests that, according to Keister, “studies that focus solely on income miss a large part of the story of advantage and disadvantage in America.”6

Because wealth sometimes represents inequalities from the past, it not only is a measure of differences in contemporary resources but also suggests inequalities that will play out in the future. Looking at racial inequality through wealth changes our conception of its nature and magnitude and of whether it is declining or increasing. Most recent analyses have concluded that continuing racial inequality primarily results from disparities in educational achievement and jobs. Sociologist Christopher Jencks, for instance, argues that improving educational performance for African Americans would be the biggest step toward racial equality. William Julius Wilson has consistently maintained in several books that advances in the workplace are the linchpin of racial equality. The asset perspective does not neglect the importance of these powerful insights. I maintain, however, that exclusively focusing on contemporary class-based factors like jobs and education disregards the currency of the historical legacy of African Americans. A focus on wealth sheds light on both historical and contemporary impacts not only of class but also of race. Income is an indicator of the current status of racial inequality; I argue that an examination of wealth discloses the consequences of the racial patterning of opportunities.

The legacy of the American dilemma of democracy and race continues to haunt the American scene. The dynamics of race and class intertwine in a way that becomes more clearly explicable upon examining how families use private wealth to expand their chances and—just as important—how lack of assets dampens aspirations. Americans highly value two cherished but contradictory notions: equal opportunity and a family’s ability to pass along advantages to their children. By focusing on assets rather than exclusively on income, we can unravel this legacy and examine how it affects racial inequality.

In summary, I argue that we have been seriously underestimating racial inequality by focusing primarily on workplace and income and that an examination of wealth is an indispensable part of understanding inequality. Tragically, polices based solely in the workplace that seek to narrow differences will fail to close the breach. Taken together, however, asset and labor market approaches open new windows of possibility, an approach I will elaborate in the closing chapter.

An Asset Poverty Line

One of the disappointments of attempts to allay poverty is that policies only consider jobs and transfers that substitute for income. Changing the lens of analysis to wealth dramatically shifts our perspective on poverty and gives us new tools. The official poverty rate, based on annual income, dropped from 15.2 percent in 1983 to 12.8 percent in 1989 and to 11.7 percent in 2001 ($18,104 for a family of four). Using these numbers we could say that the rising tide of the long boom during the 1990s seemed to lift many, if not all, boats. The government releases these official numbers annually, and they give us a good idea of the scope and nature of poverty for that year.7 But sociologist Mark Rank suggests that to understand the true nature of poverty, we must see it in a different light.8 He argues that we should be looking at American families that will experience at least one year of poverty. Poverty touches a surprisingly high number of Americans, as 59 percent will spend at least one year below the official poverty line. While this number puts the economic fragility of America’s families in a new light, the shocking statistic is that nine of every ten black Americans will encounter poverty during their working adult years.

If we think about poverty as a lifetime event and shift the perspective to examine family assets, our understanding of poverty and inequality and what needs to be done changes dramatically. And, as we will see shortly, the asset-poverty perspective captures the fragile economic status of American families, embracing nearly two in five families and over half of all African American families.

The Nobel economist Amartya Sen highlights the affect of asset-poverty on the ability to avoid elementary deprivations including premature mortality, significant undernourishment, persistent illness, widespread illiteracy.9 His argument is that poverty is more than just lacking an adequate income; rather, poverty includes lacking the basic capacities for building and sustaining a better life.

The Asset Poverty Line (APL) helps us understand the asset condition of American families. (See Figure 1.1, page 39.) The fundamental idea is to determine an amount of assets a family needs to meet its basic needs over a specified period, under the extreme condition that no other sources of income are available. We decided to tie this figure to the official income-poverty standard. In 1999 the official U.S. government poverty line for a family of four stood at $1,392 a month. In order to live at that poverty line for three months, a family of four needs a private safety net of at least $4,175. Families with less than $4,175 in net financial assets in 1999, then, are “asset-poor.” And this is a conservative standard because it incorporates the official government poverty line, which many believe underestimates the actual scope of poverty, as the basis for our calculation. It also employs a three-month standard even though one could argue just as reasonably for a six-month standard. Although I believe my built-in assumptions underestimate asset poverty among America’s families, I want to stay focused on the basic idea of asset poverty. It is my hope that as these ideas are accepted, bolder conceptions will follow.

The APL measure allows an examination of asset-poor families since 1984, so we can track trends in asset wealth. Black Wealth/White Wealth reported the rate of asset poverty in America for 1988, and the result was truly appalling. One could argue that it has gotten even worse since. In 1984, 41 percent of American families fell below the Asset Poverty Line; and the rate held fairly stable until it dipped several points to 36 percent in 1999. Nearly four households in every ten in the world’s wealthiest nation do not own enough assets to live a poverty lifestyle for three months. The boom years of the 1990s, which produced enormous wealth and record-low unemployment, lifted only 7 percent out of asset-poverty. The Asset Poverty Line shows that the effects of the tremendous run-up in the stock market in the 1990s that created over $8 trillion in equity barely trickled down to typical families.

The Asset Poverty Line also contains information on the official income-poverty line, which illustrates that looking at poverty through the asset lens changes the scope, magnitude, and understanding of what poverty means, not just the definition. One can view income-poverty as a phenomenon affecting a relatively small percentage of Americans, who, perhaps, have educational and skill deficits, physical disabilities, or personal deficiencies. But if poverty is something that affects not just one in every eight, nine, or ten families but four in ten, then we need to think about poverty very differently because it is much more characteristic of American families.

Over half of black American families fell below the Asset Poverty Line in 1999. This represents a positive trend for black families, as it was 67 percent in 1984 and has declined steadily over 15 years. This downward trend is encouraging, although an asset poverty rate of 54 percent is shamefully high and more than twice the rate of white ­fami­lies. In 1984 one in four white families fell below the Asset Poverty Line; this rate remained steady in 1989, rose in 1994 to 33 percent, and then fell back to 25 percent in 1999.

Figure 1.2 below provides information on children in asset-poor families. Thirty-nine percent of America’s children are being raised in families that fall below the Asset Poverty Line. Vivian Arrora’s ­children—Lamar, Bria, and Brittany—are growing up in an asset-impoverished family, and instead of viewing their circumstances as tragic or extraordinary, the reality is that this family represents the genuine asset circumstances and incapacities for two of every five children in America. The Arrora family is a good illustration of how much more difficult it is to permanently leave asset poverty than it is to escape income poverty. Vivian Arrora’s income barely extends past the official government poverty line, but on a personal and statistical level hers is a success story. It will take many, many years of working full-time, getting raises, and being promoted before her children will receive any benefits that go along with assets, unless she meets her millionaire.

A further analysis of this already disturbing data discloses imposing and powerful racial and ethnic cleavages. In 1999, 26 percent of all white children grew up in asset-poor households, compared to 52 percent of black American children and 54 percent of Hispanic ­children. The rate for whites has held steady since 1984 at about one-quarter while the rate for Hispanic children has risen and the rate for blacks has fallen. An annual report card on the nation’s asset health would be a good start because it would provide information on family asset poverty and a regular tally on the extent to which important segments of the population lack this private cushion.10

In this chapter we got to know the Arrora, MacDonald, Ackerman, and Cummings families. As my argument takes shape in the rest of this book I will draw upon some of the other 178 families we interviewed. The detailed private information these families shared with us is the basis for our understanding of how families use assets to promote their betterment. Just as significantly, as we already have begun to learn, lack of financial assets typically acts as a critical barrier to advancement or launching social mobility. I will use the household surveys to examine questions about financial wealth in the United States, demonstrating that private wealth is the hidden fault line in American society and that a racial wealth gap persists. The next key step in my argument explores the lives of middle-class Americans to consider in greater detail the impact of private wealth on successful white and black families. After that, I examine the main routes by which past wealth inequality becomes the foundation for modern racial inequality. To accomplish this I focus on one of the bedrocks of the American Dream—homeownership. How young families acquire homes is one of the most tangible ways that the historical legacy of race plays out in the present generation and projects well into future. To understand how young families can afford to buy homes and how this contributes greatly to the racial wealth gap, we need to unravel the legacies of inheritance. Sorting out a modern notion of inheritance brings the racial legacy into closer view. An important element of my argument details how families leverage resources to position themselves in communities they deem to be advantageous in both class and race terms. I develop this theme further by describing the extraordinary extent to which families make sacrifices and expend resources to place their children in educational environments that give them important competitive advantages. Finally, I connect what we have learned to public policy recommendations, most parti­cularly in the areas of homeownership, equitable schooling, asset development, and minimizing the ability of wealth to perpetuate inequality.

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