In a comment on my interview with Adam Shepard, Liberal Arts Dude pointed to the Economic Mobility Project, a nonpartisan collaboration between several leading think-tanks. According to the project's web site:
While as individuals [these groups] may not necessarily agree on the solutions or policy prescriptions for action, each believes that economic mobility plays a central role in defining the American experience and that more attention must be paid to understanding the status and health of the American Dream.
The Economic Mobility Project's purpose is:
To provoke a more rigorous discussion about economic mobility in America by presenting new findings and research, and analyzing the effects of social, economic and human capital factors that may impact one's ability to move up the economic ladder over a generation.
Re-stated in plain English: several groups that don't normally agree on political issues have banded together to explore economic mobility, the ability of any one person to improve her economic status within her lifetime. Can a child born into poverty achieve wealth? How? What factors influence his success or failure? The group isn't after political answers — it's seeking actual data.
Yesterday the Economic Mobility Project released a study about the trends and issues that influence economic opportunity for Americans. Getting Ahead or Losing Ground: Economic Mobility in America, is a volume of research into the viability of the American Dream. According to the press release:
- “Across every income group, Americans are more likely to surpass their parents' income in absolute terms if they earn a college degree, reinforcing the conventional wisdom that higher education provides a means for opportunity.” You are four times more likely to move from poverty to wealth if you earn a college degree than if you do not.
- “Family background plays an equally, if not more important, role than education.” If you are born into wealth, you have a 23% chance of remaining wealthy if you don't obtain an education. Yet if you're born into poverty, you only have an 19% chance of moving to the top, and that's if you earn a college degree. (There's only a 5% chance if you don't get an education.)
- “Data show that…there is ‘stickiness' at the ends of the wealth distribution.” About one-third of those born into poverty remain in poverty. About one-third of those born into wealth remain wealthy. (There's a lot of movement up and down among the middle-class, however.)
Other interesting findings include the fact that “family incomes of both sons and daughters resemble their parents' to a similar degree”. But “only 31 percent of black children born to middle-income parents make more than their parents' family income, compared to 68 percent of white children”.
The mission of Get Rich Slowly is very much about economic mobility. I was born into a poor family, as was my father, as was his father before him. I'm pursuing the American Dream. I'm hoping to help others achieve it as well.
Author: J.D. Roth
In 2006, J.D. founded Get Rich Slowly to document his quest to get out of debt. Over time, he learned how to save and how to invest. Today, he's managed to reach early retirement! He wants to help you master your money — and your life. No scams. No gimmicks. Just smart money advice to help you reach your goals.
Hello there
Many thanks for posting this information on the Economic Mobility Project. Despite my initial contentious post in my blog in reaction to Adam Shephard’s book, it did lead to a very vigorous and illuminating discussion in the blogosphere and in this blog about socio-economic mobility and the American Dream. Something that I think is very good to have in these uncertain economic times. So perhaps despite whatever political or ideological disagreements I may have with Mr. Shephard he deserves credit for sparking such a wide-ranging discussion with his book. There’s a lot of good data in the Economic Mobility Project site and I have yet to read many of their reports. I really have to give them kudos for providing this info and high-quality social science research for free so ordinary citizens like us can have an opportunity to learn and contribute in a productive way in this important conversation.
How many poor families own a box factory?
I think times are going to get mighty tough for unskilled American workers. Dothe Mobility people have anything to say on that topic?
At the risk of sounding cliché, if you believe in the American Dream, then you can certainly live it. The trick is to get people to believe!
I have a feeling (and hope) that economic mobility issues (and many other social issues) will be addressed at a grassroots level. This blog being a great example of just that.
Ultimately, liberty is the foundation for economic mobility.
only a 4% difference between people who are born wealthy staying wealthy and those starting in poverty becoming wealthy – i would so that stat leads to a couple of possible (and very interesting) hypotheses. huh.
Great post and very interesting topic. I came from a upper middle class family but both of my parents weren’t educated. My father came from a very poor family and built his life into a success by many standards. He is an inspiration to me and especially seeing that he is in the 5% category shows me how unique he was. I’m now in insurance now and have changed careers many times. On my road to prosperity, I don’t know where the road will lead to.
Jerry
http://www.leads4insurance.com
Great read. I’m a strong believer in economic mobility – I had a poor family (though not quite “poverty”) and was able to work my way through school and do better for myself than either of my parents did.
A lot of it comes down to psychology. If you believe you can rise up, you can. If you believe you can make money blogging, you can. If you don’t believe you can make money online, you can’t… same for weight loss, dating, anything really.
That sounds cliche, but as I’ve moved more into the world of non-traditional work, that is something I’ve noticed.
Thanks for sharing this information. Economic mobility has always been something that intrigues me. I had no idea that this Project even existed.
I consider myself lucky to be living my version of the American Dream.
Rant alert. I don’t usually respond to trolls, but…
Minimum Wage (under an alias) wrote: How many poor families own a box factory?
Dammit, Minimum Wage, you’ve gone too far this time. Usually I ignore your crap, but not today.
That box factory was not given to my father. It did not spring fully formed from his head. That box factory is the product of years of blood, sweat, and tears. It’s the product of hard work and desperation. Dad didn’t sit around making snide comments about how difficult life was — he tried (repeatedly) to improve his situation and the situation for his family. He failed a lot, but ultimately he succeeded.
My father embodied the entrepreneurial spirit.
Unlike you, Dad didn’t have the advantage of a college education. He went to a church school for a semester but had to drop out because he couldn’t afford it. He spent years doing odd jobs: mowing lawns, giving flying lessons, selling candy bars, whatever. During the mid-seventies, he started a successful business from nothing and within a few years he sold it for $300,000. He saw only a tenth of that. The buyer ripped him off. (I’m unclear on the full story, and Dad’s dead, so I can no longer ask him.)
During the late seventies and early eighties, Dad sold staplers and industrial supplies and boxes. He also spent a lot of time unemployed. There were times when we had no money and didn’t know where the next meal was going to come from. But Dad busted his ass. He provided for us the best he could.
When he saw a niche in the box market, he decided to start another business. He quit his job on his 40th birthday and founded the box company. He did everything himself. He built the machinery (which is still running to this day), he sold the boxes, he made the boxes, he delivered the boxes, and he did the accounting.
As the business grew, the family was recruited to help. While other kids were screwing around after school, my brothers and I were working in the shop — sometimes ’til late at night — making boxes. I hated it. I hated Dad. I hated everything about the box factory. I worked hard in high school so that I could go to college on scholarship. I wanted to escape this life.
I failed. I made some dumb choices. I didn’t have a plan. I ended up back at the box factory, where I labored for 15 years. You hate working in your convenience store? I hate selling boxes. I want out. I’m not complaining, though — I’m doing something about it.
My father was one of those unskilled American workers you write about. You think times are tough now? They were tough in the early eighties, too. That didn’t stop him from dreaming, though. He built this box factory with his own hands. It wasn’t given to him. That’s how poor people achieve economic mobility, Minimum Wage. Not from making snide comments on people’s blogs, but from actually doing something.
Dad died ten days short of his fiftieth birthday. One of the last things he ever said to me was how happy he was to have finally provided for his family. He felt he had built something that could help us grow. Since he died, we’ve worked to keep the business going. This is no free ride. It’s work.
You’re free to make all the snide comments you want at Get Rich Slowly (and other personal finance blogs), but you’re not doing anything to improve your situation or the situations of anyone else in this world. Dad did. And I’m trying to do my part.
Hey, that’s a great story, and well worth a post of its own. I love entrepreneurial success stories and hope to see more of them.
I think that’s Minimum Wage’s way of trying to apologize.
Is there some sort of back story I’m missing here? That question didn’t seem all that snarky to me. (Although the alias does make one wonder….)
Someone I know always talks about how poor her family was. But I recently found out that her family’s income was way higher than my family’s income. So sometimes “poor” is hard to nail down, I guess.
I think a family’s values have a lot to do with this, too – not just the economics. For example: if you’re poor, but your parents want you to have better than they did, they’ll help in whatever ways they can. Maybe they can’t pay a dime toward college, but they’ll make sure you get time to do your homework uninterrupted so you can win scholarships.
But then there are families who think “It was good enough for me” and actually (perhaps unconsciously) try to hold back their kids. I suspect they’re afraid if the kids do better in the world, they’ll come to scorn their parents.
So for kids from the second kind of family, they may not get far, but they’re likely to be the kind of parent in the first paragraph – which means, unfortunately, that sometimes it takes two generations.
Which is why I never quite agree when someone says “I made it all on my own, from rags to riches!” Everyone has help, just not always monetary.
I looked at these same figures recently on my own blog. I found them from a special feature in the New York Times on Class in America.
I think that the data is mostly in the eye of the beholder. When I see that only 1/3 of those who start with wealth keep it and only 1/3 of those who start in poverty stay in poverty, I see evidence of GREAT economic mobility.
Frankly, there are reasons other than opportunity that not 100% change their status. At the bottom we have mental illness, addiction, and poor mental or physical fitness that explains most of those who fail to improve their standing. On the other side of the coin intellect, leadership, and drive can keep people who start at the top to remain there. All of this is natural and does not indicate a lack of mobility.
Sure, those in the middle seem to have a better shot at the top, but we would be lying to ourselves if we ignored genetics and inherent ability. I know it is taboo but there are some people who are not capable of a college level education. There are some people who are not capable of performing useful work. These people are more likely to have children who also lack these abilities. Not everyone is created with equal abilities, it is a dirty secret but somebody has to say it.
For me the 66% who manage to move up the ladder show that if you have the skills and motivation it is possible and that is all we should strive for (ie not anybody’s job to level the paying field until there is no barrier of entry at all – that would be Communism).
Maybe I’m over-reacting.
Minimum Wage regularly leaves snarky comments at personal finance blogs. He’s smart and sometimes contributes materially to the conversation, but mostly he plays the role of gadfly.
In this case, I felt his “how many poor families own a box factory?” was meant to minimize my family’s background, to negate it as a valid data point. That made me cranky.
I truly believe that my father is an example of somebody employing economic mobility, moving from “the bottom quintile” (as the article puts it) to a middle quintile. I resent the implication that this was somehow handed to him. It wasn’t. He worked hard for that success.
I think a better question is “Why don’t more poor families start a box factory?” (Where “box factory” could be whatever you want.) My dad had more businesses fail than succeeded. He only hit two home runs. He three or four times as many businesses that never panned out. Many people in his situation never even try.
JD, kudos to your family for building a successfull business. (I’m assuming on some level your mom helped your dad with his plan.)
I agree wholeheartedly that family background has a huge amount of influence over a person’s chances of career/financial success. I’ve observed this first-hand, with several foster children who lived with my family in the 70s as well as with my husband.
All the tough talk about bootstraps is great, but when you are being abused by your stepdad, when you worry about being shot on your way to school, or hunger pangs distract you from class, it is hard to learn the skills necessary to succeed.
The other thing, JD, is that even where people try, they might not succeed.
For example, I’m sure your dad worked hard at all his businesses, not just the ones that succeeded. What if none of them had done well? He probably would have remained in the bottom quintile, but not through the want of trying. Other people who try and fail once or twice might not be resilient enough to try again.
I think there are two questions, why don’t more poor families start box factories? and why don’t more poor families succeed with their box factories?
Hi JD,
There seems to be a trend in the data presented in your article. People who achieve the American Dream seem to have the following,
– Parents as financial role models
– Teachers and peers as financial role models (for those who go to College)
…. or at least these factors seem to increase the probability of success. In my own opinion, the people in your environment will greatly affect your financial success. Or as T Harv Eker says (or something close to this),
‘90% of your friends will earn within 10% of your income.’
Plonkee,
Your question is a breath of fresh air. Too many times when the discussion is about success I hear people talking like they’re quoting a passage from the book The Secret. In reality, it doesn’t matter what arena you’re talking about — be it sports, music, or business, whatever — success is never automatic, no matter how good your attitude is, or how hard you try. Luck is always involved.
First, you need some level of talent at what you’re doing — the degree of talent necessary varying quite a bit depending what you’re trying to do. And just because most human beings can do something doesn’t mean that it requires no talent; there are many human beings in this world who are physically unable to stand at a grill and flip burgers.
Then, you must be at the right place at the right time. Today, the rare individual with the overall size, arm length, and quick feet to be a left offensive tackle in the NFL can make millions of dollars a year. But that guy would have made a small fraction of that had he been born 20 years earlier, because it’s only been since the late 80’s that teams realized the importance of protecting a quarterback’s blindside.
And finally, even after you have talent, and are at the right place at the right time, have a good attitude, and work hard, you must avoid disaster. Remember Joe Theisman’s gutsy performance in the 1987 Super Bowl? No? that’s because he suffered a career-ending injury in 1985. And what about Cooper Manning’s catch in the playoffs this year? Oh yeah, unlike his brothers, Cooper never made it to the NFL due to a life-threatening spinal ailment. And it wasn’t Christopher Reeve’s attitude that kept him from making any more SuperMan movies after 1995.
Yes, without a doubt, there are things that each of us can do to increase our chances of being at the right place at the right time and to mitigate the chance of disaster — but there is nothing you can do to totally cancel out the chance of disaster or to absolutely guarantee you will be at the right place at the right time. Whether you want to acknoledge it or not, ALL of the things I listed — talent, attitude, right place at the right time, hard work, and avoiding disaster, are necessary conditions for real success, with none of them being sufficient alone.
And I also believe that the most successful people acknowledge the role that luck plays in success — people who spend their lives building businesses from scratch rarely encourage their kids to do the same. They know the risks involved. In fact, I would say that someone who doesn’t see the role that luck plays probably lacks the humility necessary for sustained success.
And yes, I myself am in the top quintile in income, and I’ve worked hard to get myself there. 🙂
BRILLIANT comment, Anonymous.. Thank you. You’ve done a fantastic job expressing my own feelings on this subject, and in a much better way than I’ve been able to do.
Many people don’t want to believe that luck is an element of the equation, but it is. I think that most successful people recognize this. Success isn’t crafted purely from brawn and brains — there’s an element of chance involved, too.
Excellent post J.D., and despite it’s ranty qualities, your comment was great too! Of course I tend to like a little rantiness every now and again. 🙂
I don’t know if anyone would find it relevant, but the New York Times spent a year researching a series on class and social mobility in America. They looked at matters of education, immigration, religion, etc. and found some interesting results. While it is becoming a little harder to get ahead, the US remains one of the most readily socially mobile cultures in the world.
Anyway here’s a link to the series:
http://www.nytimes.com/pages/national/class/index.html
In that NewYorkTimes piece, I have worked with the demographics expert that put that together.
I grew up in a poor neighborhood. My father has an associate’s degree and was a 2nd generation immigrant (his father fled the Nazis). My mother never graduated from college.
I am one of those 19% who grew up in a poor background, got an education, and moved up the ladder.
To be economically mobile, one has to have desire, motivation, perspiration, reslience, and luck. A good role model helps too.
Because my education allowed me to dramatically change my overall life, I fully believe that the key to American economic mobility is in its education system. I believe it is a shame that personal finance is not a mandated part of the curriculum taught in high school or college.
I specifically broached this topic with Sen. Obama. Here’s hoping 30 seconds of hand-shaking moves this forward (that, and my continued dogged persistance towards this goal).
It’s people like JD, websites like GRS, that currently serve this public interest. That’s why I am thrilled to share a role in this community (and why I press JD weekly to dream big).
A few years ago I was a broke college student, but darn it, I was a college student. I worked three jobs to pay for it, and missed out on a slew of the typical college experiences (though missing out god knows how many hangovers is something I’m glad to have missed). Now I’m a member of the top 1%, but I remind myself constantly that it took alot of focus to get there, and it will take focus to stay there. If I started to live differently to a drastic degree than how I was living a few years ago, all the savings and investments that I have built up would disappear. Mobility is a lifelong commitment.
Keep the eyes on prize, sort of thing.
First, I just want to say that as soon as read that first comment about a poor families owning box factories I knew it was Minimum Wage. J.D., I think you reacted appropriately.
Second, on the topic of luck, doesn’t it seem that people with better attitudes to some degree have better luck? I don’t beleive in that Secret nonsense, but I do beleive that attitude has a lot to do with success.
It is interesting to me to see the discussion about “luck” and, to see how there is an emphasis in the comments on individual anecdotes. That’s really a part of US culture — we think in terms of the individual, and don’t always give as much thought to how general conditions affect outcomes. American “exceptionalism” is an idea this culture encourages both at a national and an individual level. At the national level, there’s the idea that the US is #1 in every category — even those we aren’t! At the individual level, we put great demands on the individual “I am the master of my fate/ I am captain of my soul” as it says in a poem a lot of US school children memorized in the early 20th century.
But, there are some social conditions that really do constrain the individual — if you come out of college during a recessionary period, when there aren’t as many jobs, or are trained in an field that suddenly contracts because of a new technology, then it’s not a matter of “luck” that your prospects for success won’t be as good as someone elses…
While there are many things that one can control, there are also things beyond one’s control — and sometimes what’s beyond the individual’s control isn’t just a matter of individual luck but is something that a concious government could address — like health care: it’s not just “bad luck” when you go into bankruptcy because you get cancer, it’s because we don’t have a reasonable health care system.
But this is long, and I’m going to stop
Pertaining to the comments above, I have heard a quote that says something along the lines of you creating luck the harder you work. I will have to do some digging to find it, but the idea is that if you are working hard, you are more likely to have ‘luck’ on your side.
I’ll also add that the desire for economic mobility isn’t just restricted to the US, it’s also present in the class bound British social system.
Although I’m solidly middle class and always have been, that’s as a result of the economic mobility of my dad, who managed to go from unskilled labouring immigrant parents, to the middle classes by the time I was born.
This was due to a combination of intelligence, government education schemes, a huge amount of luck and societal changes (the tail end of a boom in the relative size of the middle classes). Of those four attributes, the latter two are probably the most important.
JD, for what it’s worth I had the exact same reaction to that post — on your behalf and also on my own personal experience.
I have thought it before, and I’ll say it out loud — JD, if we were in close proximity I would love to be personal friends with you and your wife. I think you’re a great role model and you’re turning into your own success story.
And THAT is what economic mobility is all about — taking your personal circumstances and turning them into a success story. No two people can do it the same way.
db
P.S. for Andrea: yes, there’s a lot of backstory here 😉
I want to add that the people you surround yourself with have a big impact on your economic and social mobility. What I have witnessed is that you are more likely to be surrounded by people who tries to pull you down and have negative pessimistic attitudes, whiny but passive if you’re lower income. Adam Shepard is very lucky in that he is around people who shares his goals and dreams. Most lower income folks are not lucky like that.
And even with education, your family background still have a big impact on economic mobility.
I grew up poor, but got good grades and graduated with honors from a top liberal arts college. I had a hard time finding a job when I graduated and I’m still earning less than $40K 6 years out of school. All my college friends who came from lower income families are in the same boat. But my college friends from upper-middle income families, who have lower grades than us, are all making much larger salaries. Many of them were arranged prestigious internships by their parents early on in college.
For people like me, it was a different story. my parents never understood the importance of internships and getting relevant work experience. All they know is that getting a good education is important. You should go to a good school and get good grades, then you’ll get a good job with a good salary.
What they didn’t understand and I didn’t know at the time is that many of the skills that are important in life are not taught in schools and lower income parents are less likely to pass on these knowledge to their children. I’m still taking class full-time and work full-time b/c I want to learn about things like investing, car maintenance, and real estate. None of these classes are available at my very expensive and prestigious alma mater. I’m taking these classes at local community colleges. My parents never taught me any of these skills. I didn’t even know what’s a spark plug when I bought my 1st car.
That’s why I believe we have a big gap in the current education system. Learning Shakespeare is fine, but if people don’t learn prudent financial skills and such from school and they don’t get it from home b/c their parents don’t have it; then even if they are able to break the cycle of poverty, they aren’t going to break the cycle of credit card debt and never be truly free.
While “luck” is almost certainly always a factor in acheiving wild financial success (i.e. a building a profitable company), it doesn’t necessarily take luck to pull yourself out of poverty (especially “poverty” by American standards).
I think we’re too quick to say how hard those in poverty have to work and how lucky they have to be to acheive “wealth.” But obviously it’s hard for everyone, as 70% of those who are BORN into wealth don’t even end up wealthy. And no, not everyone has the ability or talent or time to start a company–in fact it may be a bad idea for many people, especially the average person who grew up “poor” going to bad public schoos and who has little access to mentors and connections and capital.
But that doesn’t mean you’re destined to remain in “poverty.” If you can graduate from high school (even a crappy inner city one) and work a 40 hour work week (which, granted, is hard if you’re living in the slums and/or have 3 kids before you turn 24), then you should very easily be catapulted right out of poverty and into the middle class. From where you will encounter further opportunities to develop skills, increase your income, and build wealth.
It is surely a longer, harder road to success if you start in poverty, but at least the road exists in America. Education opportunities and jobs abound. You just have to get them.
Grant me the serenity to accept the things I cannot change, the courage to change what I can, and the wisdom to know the difference.
I do see that there are chance elements in life JD. So? We cannot predict or change that so isn’t it a little moot to talk about it as a factor?
I will freely admit that my mother is a gambling addict and so I’m extremely hesitant to base anything on luck.
I respect your POV and LOVE your blog.
I wonder where mobility relates to perception? My sister makes more money than I do, yet my net worth is higher. My mother is chasing something I have little interest in. She makes about the same social security as my father, yet he’s debt free and happy.
I base my upward dreams on what uniquely makes ME happy. I strive daily for wisdom.
Lastly, I consider any source of knowledge a university. I’ve audited classes in Tightwad 101, GRS Blog, and loved reading all about square foot gardening from Dr. Mel. I consider myself mobilized by this education.
Interesting post with interesting numbers. I also appreciate your final paragraph.
You mentioned that 23% of those born into wealth stay wealthy. Later you mention that one-third stay wealthy. There is a discrepancy between the numbers, but either way it’s much, much lower than I thought. I would have guessed that maybe 80% of those born wealthy would remain wealthy. Not so.
I read the press release to see if I could discover the source of the discrepancy. The press release says that 23% of those born wealthy THAT DON’T GET A COLLEGE DEGREE remain wealthy. Overall, one-third of the wealthy remain wealthy (college degree or no).
http://www.wisemoneydecisions.com/2008/02/23/read-this-if-you-were-born-into-wealth/
Good catch, Jeff. Thanks. I’ve made a correction.
two comments. Regarding working, a good boss can make all the difference in the world, a bad boss can very quickly dead end a carear. My Wife and a friend I knew both said having the right boss at the right time really helped matters.
Secondly what is missing on any discussion about the working poor is how Corporate America exploits them. It may surprise you but for credit card companies people who have just filled for bankruptcy are the most profitable customers. As well payday loan companies backed by some of the biggest banks in America are busy separating the poor (and of recent poor seniors) from their money. While we can’t prevent people from making stupid mistakes we can prevent Corporate America from profiting from their misery.
As a foreigner, looking in here from littl’ol’ England, what worries me about the study and the comments is this: “what do you say to the people who find that the American Dream is just that – a dream?”
They work their butts off all their lives and still find themselves in poverty – were they just unlucky?