Over the last two years, many American families have experienced losing a job, draining their savings or being evicted from their home. And yet others have felt little to no disruption at all.
Wealth inequality has a lot to do with this.
“Wealth, simply put, allows you the freedom to do a variety of things,” said Bill Rodgers, director of the Institute for Economic Equity at the Federal Reserve Bank of St. Louis. “It allows you to not have to live paycheck to paycheck. It allows you to respond to emergencies.”
To put things into perspective, half of Americans hold just 2% of all the nation’s wealth, while two-thirds of it is held by the top 10% of households.
This unequal distribution of wealth is at historic levels, and it weighs heavily on communities of color.
First, we’ll start with the basics. Then we’ll dive into how the gap impacts all aspects of our daily life — including housing, education and health care.
What is wealth?
To figure out your wealth, there’s a simple equation.
First, count up any saved income, meaning cash, savings and investments, such as a 401K or a pension. Then add any other assets, such as a house or other property. Now subtract debt — for example, student, car or business loans and credit card balances. That final number equals wealth.
Selina Miller, a doctoral research assistant at Washington University’s Social Policy Institute, has been studying the difference between who has wealth and who doesn’t.
“We see at the bottom end of the spectrum people who have essentially no wealth, no assets stored up, which makes them very vulnerable to an economic downturn or something like we’ve seen with COVID-19,” she said. “On the other end of the spectrum, we have people with a lot of money who don’t have to worry about those issues and have a disproportionate amount of power in society.”
Miller recently conducted a study looking at how having liquid assets — essentially access to cash — affected people going into the pandemic. She found that people with a financial cushion were in a much better position to fend off the sudden financial crisis.
“When there’s a lot of wealth inequality, we have less stability and we have people exposed to these things like eviction and food insecurity that we don’t want anybody to have to go through,” she said.
Wealth inequality gets worse over time. Miller describes it as cumulative advantage and cumulative disadvantage.
“When you have disadvantages early on, it’s really hard to recover from those down the line,” she said.