CHAPTER ONE Separate, Unequal America
I am aiming to turn upside down some "truths" about the economy, jobs, where wealth comes from, and who stands to gain the most if we tap the armies of ignored and "inconvenient" poor and working poor who are presently left on the sidelines. We have some big problems and challenges to address, but despite what we might hear on the evening news, the United States remains the largest economy in the world, at approximately $16 trillion in annual gross domestic product.[1] Our best years are not behind us. We have enormous human resources of wealth creation and opportunity just waiting to be unleashed.
The future of our economic story fully depends on overturning these powerful myths about how the economy works for the rich, the poor, the middle class, and everyone in between. We are all called to leave our comfortable assumptions and to arrest the crumbling of the American dream that built this country in the first place.
For instance, consumers-not businesses or governments-power the bulk of our massive economy, with fully 70 percent of the economy dependent on consumer spending.[2] This means that you and I are driving the largest economy in the world, by purchasing everything from iced cappuccinos to ice shovels, from gas to put in our cars to the cars themselves. Sustained economic growth and the fortunes of the other 30 percent of the economy represented by businesses and governments, therefore, depends on the economic vibrancy of ordinary consumers, most of whom are not wealthy.
Even so, these ordinary Americans are much more reliable spenders than the wealthy; the bottom 80 percent of the American workforce spends 90 percent of its income, whereas the wealthiest 1 percent spends only 49 percent.[3] The average American cannot afford not to spend the bulk of his or her paycheck on the basic necessities of living, but the rich simply make too much to spend it all. Ordinary Americans are the coal that feeds our economic locomotive, and if Wall Street, banks, and large corporations are going to make their numbers and increase their wealth, they need this segment of the economy to become more economically strong and stable. This invariably means expanding opportunity through well-paying jobs and small businesses, along with financial inclusion and know-how.
But the "bottom" 80 percent of consumers, the backbone of the economy, owns only 11 percent of the nation's money.[4] We're now building the consumer-driven 70 percent of our economic growth on the backs of those who have only a 7 percent stake in the system, and as many as ten million of these consumer households don't even have a bank account.[5] When the poor, the underserved, and the struggling middle class start feeling uneasy about the future, or when they are out of work or out of money, they stop spending on consumer products. And when they stop doing this, everything else stops as well.
The people driving our economy get little regard, less respect, and almost no consideration for doing so. Although the system works well for some, it is leaving many behind, and as a result it is understandably coming to an end.
What might happen if we instead place faith and confidence in and support those who can actually lift our economy-who already do, through their consumer spending alone? Just imagine if we viewed the poor as something other than a tool to be used, taken advantage of, and taken for granted. What if we actually valued the poor? After all, the rich need the poor, if for no other reason than to remain rich themselves.
Helping the Poor to Transform America
We must value the poor and, through them, transform America. As Dr. King said in his 1964 Nobel lecture, "No individual or nation can be great if it does not have a concern for 'the least of these.'" Dr. King was referring to Matthew 25:40, where Jesus said, "Inasmuch as ye have done it unto one of the least of these my brethren, ye have done it unto me." I believe Dr. King was both morally correct and economically profound.
We don't have to settle for capitalism the way we have it, or the way it's been. We can refashion and reimagine capitalism as we would have it, and then do something other than complain about it. We can finally make free enterprise and capitalism actually work for the poor, the struggling classes, and the least of God's children. The world has never tried it at scale, but this is precisely my plan. In this plan, everyone gets a role to play, not just the president and other elected officials, big business, or big banks. This is our country, our world, and our communities, and if change is to come, we must drive that change.
Reimagining the Poor
So the first myth that we need to overturn is the idea that poor people are somehow not relevant to our economic growth. The second myth is that the poor somehow did this to themselves-that they are all bums and deserve to be poor because they're lazy, have bad habits, or possess a horrible work ethic. Our logic then follows: "Why should I help someone who deserves what they got?" That would make perfect sense, if it were true.
Even I used to think this way. Growing up black in the inner city, in a diverse neighborhood of striving and struggling families, attending public school, I had to find a way to deal with all the dynamics that came my way on a daily basis, to deal with difficult people, and to negotiate myself out of almost any tough situation. I was never the biggest kid, or the toughest, and, unlike the rich of this nation, I could not build the equivalent of a gate around my existence, so I had to try to be the smartest kid. One of the ways I dealt with what I saw, then, was through rationalization. I thought I understood poverty. I convinced myself that the poor people I saw were all bums and I had a dozen reasons to be against them. I now know I was wrong, and I also know that to rationalize is to tell rational lies. I was only fooling myself. And this is the worst deceit.
What I didn't understand was all the external factors that helped me to avoid becoming one of "them." I had a mother who told me she loved me and a father who was the role model I needed to see in business. I had a banker come into my classroom when I was nine years old and unpack the mysterious world of free enterprise and capitalism, explaining to me the "language of money," financial literacy. I was so totally focused on dreams and was so hopeful about my future that I seldom noticed the actual causes of all the drama and mayhem that surrounded me on a daily basis-lack of financial literacy, lack of access to banking and credit, lack of real estate ownership, lack of role models and opportunity. Lack of self-esteem.
I didn't get out because I was the brightest or most talented kid on my block. I knew plenty of brighter, more talented kids who ended up on an economic dead end or even just plain dead. I got out and did well because of the hope factor that surrounded and encompassed my life. But when this magic doesn't happen in a kid's life, and when the factors that actually drain opportunity happen often enough, then kids begin to lose hope. And the most dangerous person in the world is a person with no hope.
When enough people are deprived of hope often enough and for long enough periods of time, then a community's culture itself gets hijacked. Hijacked by thugs and thug culture. Hijacked by all the elements and the operators who seize on and even live on that loss of hope. Over time, people, cultures, and communities respond internally to how they are treated externally. Tell someone they aren't valuable or important and, in time, far too many of them begin to believe it.
Recreating a Pathway to the Middle Class
A poverty of hope cannot be solved with a nice apartment, a new car, or even a new school building in a neighborhood. This problem has to be attacked from all sides to prevent a self-perpetuating cycle in which the very poverty of the poor seems to justify the poverty itself, in which we come to think of the poor as noncontributing members of society who somehow did it to themselves.
In order to do this, we need to recapture that old hope that if you work hard, keep your nose clean, go to school and get good grades, pay your taxes and your emotional dues, it will pay off in a fair shot at the American dream and your children will have a legitimate shot at living an even better life than you. Today, both of these dreams seem to be shattered, not for just the poor and the underserved but also for the struggling middle class. Today, the bet seems to be off, or even lost, and the crisis that is spreading now is really more of a loss of confidence than a loss of net worth or home equity.
People don't mind taking risks and losing a little, maybe even a lot, as long as they believe there is still a legitimate shot at the dream. People don't mind that the lucky, fortunate, and hard-working get rich, because to be blunt and honest, they all want to be rich too. The problem arises when people begin to believe that the game is rigged, that no matter what they do they simply cannot get ahead. That is when a healthy skepticism turns into a destructive cynicism.
There are increasingly few or no clear pathways to the middle class, but unfortunately, most unaffected people do not care. Poverty was not debated or even substantially spoken about in the most recent presidential election. It is out of vogue to discuss the poor, much less to be poor. And even among those who want to help, the answer is all too often, "I would love to help, as long as the solution doesn't increase my taxes, cause me inconvenience, or happen in my backyard."
But we should all care, because the fate of the poor is the fate of us all.
Consider Detroit, Michigan, which recently filed for bankruptcy. Fifty years ago Detroit was an economic hub, a center of culture and manufacturing jobs, home of some of the largest industries, companies, and employers in the world, supplying American-made automobiles to a burgeoning American middle class. Stable jobs, good wages, and benefits fueled a thriving middle class, and families and neighborhoods flourished. Back then, Detroit was the fourth-largest city in the nation, with more than two million residents, and boasted the largest per capita income in America.
Today, the entire automobile industry is a shell of its former self, and after decades of decay and retreat, the population of Detroit has declined to about seven hundred thousand and the unemployment rate stands at more than 18 percent. Those stable, high-paying jobs have been replaced by technology and global competition, resulting in a complete collapse of the economy.
This wasn't the fault of the workers. Instead, Detroit's leaders lost sight of that story line, and a city about the many, which found a magical way to ride a wave up, increasingly became a city about the few, where everyone concerned rode the original dream into a deep fiscal ditch. The leaders forgot about the struggling class that made the city in the first place. Detroit made things and Detroit remade things but Detroit didn't reimagine things as they could be, rather than just the way things happen to be today.
For instance, the original mission, vision, and purpose of the trade unions in Detroit was workers standing together to protect themselves and ensure a decent standard of living. But today most people in Detroit could not actually tell you what that original mission was. Instead, the unions began to see their role as simply guaranteeing jobs, raises, and benefits, to the point that worker health insurance is today one of the largest expenses for a Detroit car manufacturer. General Motors planned to spend more than $60 billion on employee health insurance, an average of $1,400 per automobile coming off the line.[6] Its biggest expenditure would thus be employee benefits, not a new-technology engine that runs on alternative fuel or a newly designed emissions system to reduce carbon dioxide levels.
Detroit went broke long before it went bust; it ran out of ideas. This isn't the fault of the poor, but this is one of the reasons the poor stay poor, and it is one of the reasons that Detroit became the largest municipal bankruptcy case in American history.
Or consider Chicago, a city on the bubble and simultaneously at a radical hundred-year tipping point. It could go either way-it could become a model for breakthrough transformation of cities or it could crater. Chicago is an economic engine of the Midwest, home to countless Fortune 1,000 companies, yet Chicago is today a tale of two cities. There is the posh Chicago, which is a national tourist mecca, and the other Chicago, which locals call "Chi-raq"-a locked-down, suffocating war zone where forty-five young people from urban, low-wealth communities were shot or stabbed in one weekend.[7]
Chicago's leadership is understandably throwing everything it can at the problem, from increased law enforcement to stronger sentencing to traditional summer youth employment options. In other words, their solutions are both reactionary and visionary, both fear-based and aspiration-based. But the current crop of aspirational incentives is not very aspirational. Instead, they are merely functional. And that's a problem.
No powerful trade union or law enforcement agency can keep a city's economy alive by itself. Likewise, cities don't thrive because of law enforcement, although civilized society requires both. Cities thrive when there is a high level of individual economic energy and at least the perception of enough opportunity to go around. And all of this is about one thing: hope made real through a pathway to the middle class. This requires an allowance and an opportunity for everyone to become a stakeholder in that city's dream. Not a creditor to the dream, not a supplicant, usurper, or bottom fisher to the dream, but a stakeholder, a participant, a partner in that dream. It's not what we get but what we have to give that matters most.
If we want to save America, we must save its cities, and the only way to save America's cities is with a vibrant and believable pathway to the middle-class American dream. Middle-class people and families don't want war or strife, they want to go shopping! Actually, they just want economic opportunity. The best stabilizer of societies, here and around the world, is not twenty-year-olds armed with AK-47 assault rifles but ten-and fifteen-year-olds armed with hope, economic energy, opportunity, and a dream of a life better than their parents. Currently, the economic energies of the poor are neglected or wasted. They're outside the system.
Teaching the Language of Money
It's time for a rebirth of America, in America, by America. It's time for us to reimagine everything. Currently, we are comfortable helping the poor with philanthropy, government assistance, or microfinance, but these solutions are all inadequate. The poor don't just need "help"; they need investment. They need to be treated as customers and job creators. The main driver of freedom in the world today is not the vote but access to capital and knowledge about how to use it (self-determination). That means financial literacy education, financial capability, and financial and economic empowerment. If people don't understand the global language of money, and if they don't have a bank or credit union account, they are simply an economic slave. Thus, access to finance and financial literacy is a new civil rights issue.
I have gotten to this point of my life precisely because of the rights restored to me from and through the original civil rights movement here in America. I was able to dream big dreams as a child because of the struggle, sacrifices, and investment made by my mother, my father, my uncles and aunts, my grandparents and great-grandparents, and others. I had great role models. But this history and these people could not completely help me to get to the place I wanted to go next, the place where the poor, the underserved, and the struggling classes need to go next.
The poor and the underserved have never gotten a memo, a manual, or any education in free enterprise and responsible capitalism. Poor neighborhoods and communities simply make the rules up as they go. It's not surprising that these communities have fallen behind; the amazing part is that they have done a pretty impressive job of this thing with no help, almost no guidance, and zero role modeling of real wealth creation. Unfortunately, the vast majority of these economic shortcuts implode in time.
My father, the businessman that I modeled most growing up, got up early every day, worked all day, often six days a week, got home late. He also employed other people and was the very definition of "hard work." At one point he owned a small business, a gas station, an eight-unit apartment building, even our home.
He also ran a concrete contracting company, laying drive-ways and building the most beautiful brick walls. But he had a unique way of bidding jobs. He just underbid whoever was there right before him, which meant that while my father got the most jobs, he also lost the most money. For every dollar he made he spent roughly $1.50, which meant that the more money he made the more broke our family became.
After fifty-five years of running a business this way, my dad ended his amazing career dead broke. After a career of hard work, saving, and sacrifice, he lost everything. He knew all about hard work but he had learned almost nothing about the language of money, financial literacy. And not only did we lose everything but also our family fell apart. My mom and dad divorced; my brother never got to go to college. My dad made a series of bad financial moves, which in time and like dominoes ultimately derailed all of our life aspirations. But this wasn't entirely his fault.
This is only one, personal example. There are countless stories of the once poor and now famous rap star or the professional athlete with a multimillion-dollar contract. These superstars earn the money, but when it comes to figuring out what to do with it, they are winging it. And winging it, with a one-shot opportunity at that kind of money, generally works out very badly. Sixty percent of NBA players and an alarming 78 percent of NFL players will file for bankruptcy within five years of retirement.[8]
Or look at the guys who sell drugs and eventually find that their only real assets include a cool wardrobe, a hot car (with horrible financing attached), and a roll of dollar bills burning a hole in their pockets. They don't own real estate, they have no savings, and in most cases, they don't even have a bank account. They're essentially living an expensive, high-gloss version of hand to mouth.
When young people are not given financial education, and when schools don't seem to connect the power of education with the power of aspiration, those young people understandably start looking for shortcuts to financial success. And when such shortcuts are modeled on the high-profile shortcuts people see on TV or the things they see in their communities, they are likely to be headed for the strongest and most painful failure. None of this stuff works in the long term. It just feels good in the moment. It is the very definition of winning battles and losing wars.
This ripples outward in a self-perpetuating cycle. Many American communities exhibit this short-term, get-it-now, looks-like-success-so-it-must-be-so version of winging it, at scale. Add a thugged-out culture that is increasingly dropping out of school and simultaneously losing hope and you have a prescription for an American societal crisis within twenty years.
It is simply not sustainable, and all of it feeds and feeds on hopelessness. What we need now is a reset, and a new business plan based on real financial literacy.
The Freedom of Self-Determination
But financial literacy, access to credit and banking, is not enough without opportunity. In the twentieth century, the definition of freedom was tied to what was going on in the wider world-a handful of defining movements toward emerging democracies, led by leaders such as Michael Collins in Ireland, Mahatma Gandhi in India, and the late Nelson Mandela in South Africa. The United States, of course, has been blessed with leaders such as Julian Bond, Amelia Boynton, Medgar Evers, Marian Wright Edelman, Dr. Dorothy I. Height, the Reverend Leon H. Sullivan, Dr. King, Congressman John Lewis, A. Philip Randolph, the Reverend C. T. Vivian, Andrew Young, and Whitney Young, leading a homegrown civil rights movement.
In each of these places, the primary issue was race, the color line, and social strife, and the cure was almost always democracy and the right to vote, which in turn ultimately triggered real changes in public leadership, important laws, and the public policy governing fundamental issues of fairness and fair play. Looking back on the twentieth century, I think it is fair to say that democracy indeed won this fight.
Democracy continues to fight the good fight in parts of the world that are not yet free to vote, dream, or create on their own. But the issues faced today in much of the world are different. Today, the new definition of freedom is self-determination.
I was recently a passenger in a Washington, DC, car service owned and operated by a Pakistani-born man who had immigrated to the United States, quickly building a family and an entirely new life. When I asked him why he had come to the United States, risking so much to get here, leaving behind his life and family back at home, his answer was one word: freedom. Then I asked why he had picked this particular business, which was probably not going to make him rich and in which, like my father, he worked long hours, sometimes weekends, often holidays. Again, the answer was simple, instantaneous, and one word: freedom.
This man did not come to America to get rich; he came here for a feeling. He was running his own small business-the heart of the American dream-to make a living, yes, but more importantly, so that he could do as he liked, when he liked, however he liked. He could choose who entered his car as a client, who stayed, and even who came back. He had an option to take one vacation with his family in a year or to work a few more days in a month and take two vacations in that same year.
He enjoyed a number of other benefits, too. He could send his child to public school in a free nation or he could work a little harder and send that same child to private school. Later he might choose to send them to a college or university. He was not focused on growing his business a given percent per annum, accumulating a certain amount of wealth in his bank account, or attaining a particular quantifiable return on equity. Instead, he was focused on living his version of the American dream-a life that is self-determined.
This sense of self-determination begins with financial dignity. We must move from a legacy of civil rights justice for a few to what I call "silver rights" empowerment for all. Ensuring financial literacy and economic opportunity is the new civil rights issue for this generation, and the real underlying solution, in troubled places both here and around the world, is to create job opportunities-and not just government-sponsored jobs. Some of these jobs will be broadly based, from private sector jobs to newly minted corporate jobs for the college trained. But even more important are the small business jobs and the magical power of entrepreneurship that creates jobs.
We must move one hundred million or more Americans (approximately one-third of the U.S. population) up and into true participation in the free enterprise system, anchored with education, self-esteem, real choice, and real opportunity for all. I not only want rich and poor people alike to think for themselves, I also want them to think differently. I want them to reimagine everything and then to go and do something about it in their lives. This is what I mean when I talk about wealth. This is about delivering the memo to families who never got one.
Restoring Hope
Giving people financial literacy and an opportunity for self-determination means giving them hope. But the reverse is also true: making this country work for the masses of struggling Americans, the middle class, and those who want to one day join them depends on the power of hope itself. Hope is so powerful that you only need a super minority of it to change the world. Indeed, Shane Lopez, a leading social scientist measuring the impact and power of hope, found that hope is a greater indicator of academic success and graduation rates than ACT and GPA scores combined.[9]
The hope factor, as I describe it, is the general feeling that if you follow the rules it will pay off with an opportunity for success or failure on your own merit. When the average person no longer believes this is the case, then all bets are off and all of society is screwed. At the end of the day, this is not an economic crisis in America; it is a crisis of virtues and values. It's not what we are doing but what we are about.
No one succeeds in the long term and no society can achieve long-term sustainable success by remaining focused on what it is against. The soaring rhetoric of our Constitution, our Bill of Rights, and even our best business plans are all "what I am for" sort of stuff. It's all built on hope and the intangibles of belief.
What poor folks need now is action and a plan based on what America is for in a world expert at figuring out what it is against. We must be for and work toward financial literacy and access for all. We must be in favor of providing people with the education and opportunity to discover and follow their own paths to self-determination.
Just think of the magic that the Occupy Wall Street movement could have worked if it had done more than simply channel a generational frustration with capitalism. Think about the power of developing an alternative economic system and then placing that bold, practical, and compelling vision before America. There was a moment when they would have had nothing but buyers for that dream. Even the media was looking for something it could print about an agenda that a generation could be for and then an action plan to do something to accomplish it.
It may have been a missed opportunity, but that opportunity still exists. We must harness hope by shifting from stating what we are against to working toward what we are for, and that alone will create positive economic energy. That alone changes the tone and culture of the environment in which we live and lifts us all up. Black poverty, white poverty, it's all poverty.
CHAPTER TWO A New Look at Income Disparity
The poor are not who we might think they are. The traditional government method of gauging poverty is understandably financial and almost strictly fiscal, measured in what's called "absolute terms." The federal government defines the poor in America as those who make approximately $23,050 a year for a family of four.[10] The U.S. Census Bureau reports that 16 percent of the American population lives in poverty, including 20 percent of our children. And all the numbers have gotten worse in the past twenty years. In fact, between the ages of twenty-five and seventy-five, 58.4 percent of Americans will spend at least one year below the government-defined poverty line.[11]
However, the federal government's poverty statistics, accurate though they may be, do not in any way define the absolute state of the American experience of poverty. The real poverty we must battle is a state of being rather than a simple statement of financial condition. It is much more connected to aspiration, emotions, psychology, and hope than it is to financial or material analysis. Therefore, my approach reflects behavioral rather than traditional economics. I believe that we define poverty in America too narrowly. Because we don't really understand poverty, we mislabel it, disassociate ourselves from it, and then, ashamed that we have any of it at all as part of our pristine American experience, lock it away in a sort of a repressed psychological box labeled, "Not me; not us."
Discussing poverty in America today is arguably even more taboo than discussing race. At least we talk about race. We are ashamed of what we think we know and understand about poverty, and as a result, like all forms of shame, we really don't want to deal with it. And this of course makes solving it almost impossible.
My objective is to expand and deepen this definition of poverty; to dilute, redefine, reimagine, and, most important, remove the shame of this definition. To replace it with the only label we need: hope.
The Poor Aren't Who We Think They Are
I wish to move away from the unproductive argument surrounding poverty and toward a broader reimagining of what it means to be poor, reflecting the modern reality that is often missed in the purely statistical dialectic. To resolve this internal conflict, I recommend reframing the discussion around what we might call the "teetering class."
We often get tied up in knots over the definition of poverty as exclusively an issue of income, thinking that only low-income people are poor or suffer the consequences of poverty. This is misleading, and frankly it is meant to mislead in some instances, to reduce the discussion to an argument that can rarely be resolved. I don't wish to argue this point.
America has a teetering class of people from all walks of life, living with a wobbling sense of staggering uncertainty. These aren't just the poor. These are the nearly poor, the almost poor, the could be poor, the was poor, the really poor, the somewhat poor, the temporarily poor, and, of course, the persistently poor. This class of Americans is hard to define. It extends across traditional class, race, and economic lines. It includes people who work and don't earn enough to cover their expenses, whether this is a low-income single mother earning a living as a waitress or a married midlevel accountant earning $50,000. They represent a diverse but interconnected, multiracial population of average, everyday American heroes and "sheroes" living all too often with too much month at the end of their money. They teeter from one paycheck to the next, from one emergency to the next, one step ahead of collection notices, late fees, overdraft fees, and utility cutoff schedules. That sense of perpetual worry gnaws at a person's psyche, and over time begins to erode one's sense of self-confidence,
This class of people keeps America strong and moving. These people are raising families in struggling households both large and small, both urban and rural, both black and white, and somehow they are finding creative ways to make ends meet and to live life with dignity. Often, they find themselves hoping against hope that all of it will simply work out on its own.
The recent economic crises pulled many more members of what we call the middle class into this new reality of the teetering class, with the accompanying disabling characteristics. "Middle class" once meant stability, whether for a blue-collar worker such as a factory worker or a white-collar worker such as a college professor. Job and income stability meant one parent could stay home to raise the children. In the current economy, many members of the formerly blue-collar middle class have fallen into poverty, leaving a contracting middle class composed of more white-collar workers but with two working parents. These parents are competing with the streets to raise their children, and after twenty years of hard work and sacrifice, many find that they are not making any more money.
Today's middle class is a tightrope, precariously perched on the precipice of financial ruin. It is unsure, unsteady, and quivering with uncertainty not only about its own future but also about the future of its children. Middle-class Americans are worried and embarrassed that, for the first time in a century, it seems as though our children's future may not be as bright as our own. This is the teetering class: anxious, insecure, stressed, overworked, and worried. This class-this psychological class-is as likely to have high incomes as low incomes, whether people are living on $75,000 in a major city or $15,000 in Des Moines, Iowa. An annual income of $50,000, which is the earning of about half of all American families, is just about the point at which living standards become tight in a city such as Washington, DC. So this condition is detached from absolute income and is more related to overall money management and long-term stability.
The emotional and psychological effects of being a part of the teetering class are many. First, it results in a lack of self-confidence and self-esteem. This is about half the problem. A person who doesn't feel good about himself or herself is screwed in America. If you don't believe in yourself, no one else will. Second, poverty results in a lack of positive role models and a crappy environment in a person's immediate community. Finally, poverty produces a lack of opportunity in education, educational quality, and educational attainment; a lack of relationship wealth, or "who you know"; and a lack of access to capital and knowledge, financial or otherwise.
A person can experience two of these disabling characteristics and survive, perhaps even feel successful, maybe even for a long time. But a person who experiences all three of them has a slim chance-or no chance-of success in America.
This shift has damaged the self-esteem and personal self-confidence of these people as well as their access to real, sustainable opportunity. Many are now among the permanently unemployed who have been without a job for six months or longer, and, in the new job market, many who once made $75,000 or $100,000 annually are settling into new job opportunities paying $40,000 to $50,000 annually. All around them, positive and aspirational role models have significantly thinned out as peers, family, and friends have also lost their jobs or changed jobs, and their immediate environment has suffered serious hits of aspiration and hope.
Add to this the increasing overall cost of living over the years, the consistent migration from rural areas to major cities, and the overall static income in America over thirty to forty years, and you have middle-class families who actually feel poor.[12]
But if individuals making $50,000 annually are struggling to make it, what are the prospects for those making $25,000 annually, with two children and the equivalent of a high school education? Considering that 76 percent of all Americans are living from paycheck to paycheck[13] and more than 60 percent of American gross domestic product is consumer driven,[14] we are effectively starving our chief economic engine-the American middle class and those aspiring to join them.
Opportunity (Not) Knocking
People meeting this new definition of poverty are as likely to be someone we know as to be someone we hear about in the news. But they all have one thing in common: they live outside the beltway of American opportunity.
Obviously, people don't wake up one morning and decide to be poor; nor do they want their children to be poor. Most parents want their children to be successful, hard-working, taxpaying citizens, both for their own good and as a matter of pride. But people can't give what they don't have. They emulate what they see around them, and what most poor people today see are others just like them, who lack financial literacy and access to banking and finance, who have poor credit scores, who may not have a job, who probably don't own a home. Their neighborhoods don't include many positive role models, entre-preneurs, or business owners. And most of all, they don't see a lot of hope.
Driving through urban, inner-city communities reveals centrally located real estate (usually within five miles of a city's downtown) that is either run down or looks completely abandoned, though it is supposedly home to the poor. There are check cashers next to payday lenders next to title lenders, and rent-to-own stores next to liquor stores. This is what I call a 500 credit score community. A 500 credit score community-like a 500 credit score individual-has a certain personality, behavior, and value set. Low credit scores tend to drag along with them low levels of hope and self-esteem, low levels of financial literacy, and low levels of education and aspiration. People in this position become easy marks for those who see poverty as something to be exploited rather than as potential to be nurtured. The existence of such communities triggers mostly one-way prosperity, with money flowing almost exclusively toward the owners of the enterprises.
The poor and working classes have always striven to get on the path to the middle-class American dream. This was a solid aspirational dream for generations of Americans from World War II forward and it worked as the ultimate stabilizer for society. Nothing stabilizes society better or faster than a good job and a shot at aspirational success. I call it the hope factor, and hope takes off like bamboo when it is planted within the ecosystem of a city environment primed for growth.
But today's poor and working classes all too often do not occupy an ecosystem of hope or an environment primed for growth. In fact, growing up in this kind of neighborhood, I learned that no matter how nice the people in a community might be, poverty is just as much a culture as success is. And the culture of poverty stretches out into just about every aspect of one's life.
The American Psychological Association reported that job pressure and stress are the top two causes of stress in America. The poor experience the greatest amount of these two kinds of stress and are therefore highly likely to be constantly experiencing finance-related stress, which can actually impede cognitive function.[15] This psychological effect can further perpetuate poverty in a debilitating cycle.
Statistically, poor people also have poor access to health care and housing. Their diet is often of poor quality-after all, fresh fruit and vegetables are expensive (and even inaccessible in some neighborhoods, known as "food deserts"), but feeding a family of four at a fast-food restaurant is cheap, accessible, and easy. And poor people, by definition, have poor financial service options. In fact, the poorest actually pay the most for their financial services. This sense of lack and financial insecurity, along with financial illiteracy, begins to bleed into the lane of opportunity, too.
The disadvantages faced by the poor go on and on. Basically, when you are poor, most everything is a challenge, and this translates into poor overall well-being. The top causes of bankruptcy are medical expenses, unemployment, and debt, accounting for 79 percent of all bankruptcies. And to complete the cycle of poverty, these weak financial conditions often make it harder to find a job, with 47 percent of U.S. employers requiring a credit report as part of the hiring process.[16]
And this, of course, is being passed down to the next generation. Poor children have poor educational attainment opportunities. Schools in poor neighborhoods tend to be run down, understaffed, and short on supplies or enrichment opportunities, but the main reason that minority kids drop out of school is not academics but money.[17] They either leave school early to make money to support their families or they drop out because they don't see that education will ever make them any money. Students drop out of college-overwhelmingly so-because of the cost of this same education. They or their families either can't afford the cost of tuition or can't afford or access student loans.
If we fail to do address these issues, we will find ourselves as a new second-tier nation, focusing all of our time, energy, and ever-decreasing resources on surviving at home rather than thriving around the world. We will become the nation that used to lead the world. We are all in this together.
The Rich Aren't Who We Think They Are
Just as the poor are not who we might think they are, neither are the so-called rich. The advantages they enjoy are both financial and a mirror image of the disabling characteristics I outlined in relation to the new definition of poverty. Relative to the poor, the well-off possess incredibly high levels of self-esteem and self-confidence. In fact, this is this group's real wealth. Second, they possess strong and positive role models, typically beginning with their parents, a strong and stable community environment, and most notably, access to vitally important business role models. Finally, this group possesses strong and natural access to opportunity in their lives-strong schools, top-flight educational access, and educational resources. They also possess a natural network of family relationships to help them navigate circles of power and influence.
People making $100,000 or more a year are not necessarily on Easy Street, but they do live on a different street in the ways that matter most. They typically hold advanced degrees, and as a result they retain the invaluable set of college relationships that continues to pay both financial and nonfinancial opportunity dividends. Their families enjoy this same informal benefit loop, from an informal e-mail that facilitates a job to an informal phone call that fast-tracks college acceptance at a highly sought institution. Fifth-generation Yale graduates don't just happen. It is intentional and is based as much on relationships and social comfort as it is on competence.
Today our major issue is not so much race, the color line, or social strife as it is class and poverty. Just when we are starting to get our hands around all the racial challenges facing America, creating institutions, organizations, and laws to deal with these injustices, here comes an entirely new form of barrier-class, wealth, and privilege. There are increasingly two worlds-the rich one, where people make $100,000 or more, and then everyone else.
It makes complete sense that the wealthy, educated, and privileged would prefer not to deal with the problems they see every day on the news and on the streets, problems that don't seem to have any solutions. All the crime, drugs, over-flowing prisons, crumbling schools, and general despair are frustrating to rational adults of all races and social strata. So it's understandable that those who can afford to do so might like to retreat to gated communities and private schools, hire private security, hide out in private clubs.
Unfortunately, if we go down this path, society will fray and fall apart, because the hope within people will fall away. And if hope falls away, no private gated community or private security force will keep anyone safe. Turning off and turning away doesn't work. We cannot turn away and turn inside simply because people are difficult and our problems seem intractable.
The Wealthy Won't Stay Wealthy if We Keep the Poor Out
The irony is that the privileged class is at least in part utterly frustrated by an environment it helped to create by turning its back. When society succeeds, we all played a role in that, but when it fails, we must cop to that participation also. The rich need everyone else, if only to stay rich. Manufacturers need people to buy their products, retailers need customers for their goods, technology companies need users. And even more, the well-off must remember who works in their homes and businesses, who caters to their needs and handles the details of their lives, who takes care of and even educates their children.
The poor are all around us, and it is actually because of them and their belief that there is still enough hope left over for them that society still works, that cities are still civilized, that most people still stop at red lights and are law-abiding citizens. It is because of the working poor, the underserved, and the struggling middle class that America works at all. That America is America.
If the rich and privileged simply decide to disappear behind their walls, the things that they depend upon for their largess will fall away, will be torn away, or will be destroyed. This is a global problem, not unique to America, but it is a most immediate risk here in the United States because of our reliance on freedom, life, liberty, and the promise of our Constitution at the heart of the American experience.
But there is another way, rooted in a new partnership between government, community, and the private sector that focuses on actually solving our problems in a holistic way. This is a partnership between the rich and the poor, focused not merely on decreasing problems and poverty but also on increasing levels of aspiration, hope, engagement, well-being, and, with all of that, increased economic energy and increased gross domestic product.
Eighty-four percent of all tax revenue in the state of California is paid by 15 percent of California taxpayers.[18] To me, that's not a problem, that's a new American opportunity. It means there are another 85 percent of Californians who could be contributing more, doing more, aspiring more, and adding more to California's bottom line. Immigrants or their children founded more than 40 percent of Fortune 500 companies, which collectively employ more than ten million people and today generate total annual revenues of more than $4.2 trillion.[19] Furthermore, for some time, the job growth engine in America has been small businesses, entrepreneurs, start-ups, and what is often referred to as "shoot-ups." Every big business was once a small one, and the thirty-eight million residents of California represent a huge, mostly untapped reservoir of economic energy.
The poor and the working class are not a problem to be dealt with but the keepers of an untapped opportunity that can be leveraged for the benefit of America. They are not just reliable consumers but also are future producers of economic recovery.
Economic Power Is Political Power
Governments and public spaces were not nearly the first to desegregate, or to be desegregated. It was business that did this first in the South.
Dr. King was unique and special for many reasons in addition to his brilliance as a strategic thinker, planner, and marketer. For one, he was an optimist. He figured out what he was for, when most others simply knew what they were against. Dr. King also knew how to spot a trend and then leverage and utilize the untapped strengths of those around him, including his staff and key advisors.
When Rosa Parks refused to give up her seat to a white passenger on a Montgomery, Alabama, bus on December 1, 1955, she wasn't trying to be a hero. But Ms. Parks catapulted Dr. King into the leadership of the movement for civil rights and, what was less obvious, made possible the first big a-ha moment of the movement in the period that followed. It was a silver rights moment.
Following the arrest of Parks, blacks refused to ride the buses, on the grounds that if they could not sit where they liked, they would rather not sit on the bus at all. For a time they even created their own transportation and taxi services to move the black population around the city.
Unfortunately for the bus company, most of its customers in Montgomery were black, and blacks' refusal to patronize the business eventually bankrupted it. The protesters did not initially avoid the buses in an effort to hurt the bus company, but they were not blind to the fact that when, as a group, they avoided the immoral and unethical business policies of the bus company, it really hurt.
It was a lesson in simple economics and a reminder that the black population was the simple majority-and a majority of the customers-in most of these small towns. These realizations settled in the back of the nimble mind of Dr. King as a life lesson, and after nine months this "moral plan" became a de facto business plan for the movement. Later, whenever Dr. King entered a town to march for truth, justice, and freedom, he had a few organizational rules to go along with the emotions of the plan. For instance, he forbade violence on the part of the marchers, who would preferably include a lot of well-dressed, respectable women and kids. He was also media savvy, so all marches were to be staged before 2 P.M., which would allow coverage of the march on the six o'clock evening news, in those days before the twenty-four-hour news cycle.
Most importantly, however, after weeks of marching and a general black consumer pullback from local merchants in a town, Dr. King quietly sent in his chief deputy and strategist, Andrew Young, to meet with the local business elite. The theory was simple: the freeze on consumer spending was hurting business, and if Young could get one hundred local business leaders in any of those small towns to agree to anything, the local recalcitrant political leadership would ultimately come along for the ride.
Young was never really seen leading marches, nor was he arrested, because Dr. King didn't want him to be. Young was more valuable as a calm negotiator at closed-door business meetings than as another bruised and battered civil rights warrior sitting in a jail cell.
Time and time again, the strategy worked, and thus it was the business community, not local government or public institutions such as local colleges and universities, that first desegregated the South. Think lunch counters at Woolworth's or protests against the Whites Only signs at other commercial and retail establishments throughout the South. All of that all came first, before political reform. The business community desegregated the South and then governments begrudgingly followed. Civil rights in the streets accompanied by silver rights in the suites-it took both, working in concert and within an ethical framework, for the plan to work.
Financial literacy, one kind of empowerment in the new world in which we live, is the new civil rights issue for a generation. And a new generation, empowered with the confidence that comes with knowing better in order to do better, would radically change our national economy. It also would greatly influence which industries win and which lose. Imagine a generation of educated, confident individuals, empowered with financial literacy and an increased credit score, and then reflect on how well the more than thirteen thousand nonbank, often predatory financial institutions would fare in this new world where the consumer is king.
The New American Royalty: Consumers
When Henry Ford introduced his first automobile, he was smart enough to pay his workers enough to buy the automobiles they were building. Ford's factory production approach was all about volume, and he realized there was no point in building a lot of cars if he didn't have a lot of customers. Ford's insight helped usher in the birth of the American middle class-and provided a kick start for the city of Detroit.
Since that time to today, from Detroit to Silicon Valley, it has been the masses of America, not the high-end classes of America alone, driving this economic juggernaut. In fact, with the notable exception of wealth gained through criminal activity, war, government contracting, and the like, almost all real wealth accumulation in this country has come through the working poor, the struggling classes, and a broad middle class.
A couple of decades after Ford, another automobile manufacturer learned what Ford had already shown. General Motors' Cadillac division was faltering in the 1930s. In 1928 the company manufactured 41,172 Cadillacs; by 1933 Cadillac sold only 6,736 cars, a decline of fully 84 percent. It was losing so much money that the board of directors was debating whether to close the division down entirely.[20]
Luckily for GM, it had Nicholas Dreystadt. As Dreystadt traveled around the country, calling on the service departments of Cadillac dealers, he noticed that a significant number of Cadillac owners were black, even though Cadillac, which was after the prestige market, refused to sell to blacks. These owners were buying the cars through white straw buyers.
Dreystadt encouraged the board of directors to drop its discriminatory policies and begin selling Cadillacs directly to black customers. The board bought his reasoning, and in 1934 Cadillac sales increased by 70 percent. The division actually broke even. And during still-depressed 1937, more Cadillacs were sold than during roaring 1928.
This changed the industry, but it also changed the consumer. The black consumer gained respect as a legitimate economic force multiplier that could in fact lift the economy, if not radically transform and save an entire company and countless jobs.
The clout of poor and working-class people is no less powerful today. Walmart, founded by a man who drove a pickup truck until the very day he died, was created to provide affordable and quality products to and for the working class and the working poor. Although the company has a controversial record on the treatment and fair pay of its workers, it is none-theless the largest retailer in the world today, and one of the largest employers of minorities, women, and people of color.
But the really instructive point here is that the biggest retailer in the world is not Nordstrom or Macy's, Neiman Marcus or Barneys. It's Walmart, by a long shot. The store that serves the working class, not the stores that serve the wealthy class or even primarily the middle class, dominates the retailer landscape. Other heavyweight retailers such as Target and Costco also cater to the working-class to middle-class customer.
In the service sector, restaurants exhibit the same bottom-up support. The restaurant, when first introduced as something other than a rest stop for weary travelers, was truly a perk for the wealthy and well-to-do. Today, of course, we have restaurants inside gas stations and supermarkets. Restaurants took off and became a sustainable business model when they became commoditized in many ways for the growing working and middle classes. In addition to the billions of dollars of annual revenue generated by restaurants, of course, the industry also provides jobs and economic opportunity for small business owners and working-class employees.
Even items such as telephones owe their huge success to the massive numbers of people who want to own them. The telephone was originally only accessible to the wealthy and well heeled, but Ma Bell and the national network of shareholder-funded telecoms did not grow and prosper until the landline telephone was made available to the masses and was broadly adopted by the American working class. Then the industry exploded, original investors and business innovators got rich, and the poor and underserved got something of real value.
Today, of course, the telephone is ubiquitous, particularly in its new iteration as mobile and smart phones, and owning a phone is no longer just the dream of people in the developed world. Youth and adults in the developing world are taking up mobile phones at such a rapid rate that there are today almost more mobile phones in the world than people-more than 6 billion units.[21] When the mobile phone was first introduced it was a true perk, costing upwards of $3,000. Today, the mobile phone is so common that Africa will probably begin to phase out landlines and become the first continent to focus solely on wireless in the near future. People who don't have running water, a roof over their heads, or paved roads in front of their homes have a mobile phone.
The mobile phone industry has become one of the most profitable industries of the past hundred years, making countless entrepreneurs and shareholders immensely wealthy while increasing the connectivity and empowerment of communities and individuals the world over. And its success has been driven by the working poor, the underserved, and the struggling classes, both in the United States and around the world.
Even the humble indoor toilet, taken for granted today, was originally something only the wealthy and the privileged enjoyed universal access to. It was not until the early twentieth century that the toilet entered the American mainstream, in part because of education among the populace about its benefits but particularly because the cost radically dropped. Few things have changed the lives of the working poor, working class, and middle class in America more than the indoor toilet. This not only was a benefit for society but also created a new industry.
An Untapped, Unleveraged Asset
On and on it goes. Most recently we've seen Silicon Valley transform America as its working-class, middle-class, and immigrant entrepreneurs create companies and technologies that speak to the masses. And although we are talking about billions of downloads and micro transactions, we are not talking about small dollars. This incredible expansion of market opportunity created wealth from an idea as shareholders and entrepreneurs from countless companies grew market capitalization and shareholder value in an industry that didn't previously exist. But without financial literacy, an enabling environment that includes access to banking, credit, and good business role models, and the opportunity to act on these entrepreneurial dreams, such ideas will remain only dreams.
There is a difference between being broke and being poor. Being broke is a temporary economic condition, but being poor is a disabling frame of mind and a depressed condition of the spirit. It leads to a whole culture of tending to see the glass as half empty rather than half full, of seeing oneself as the victim rather than the victor, as a consumer rather than a producer or a manufacturer of ideas.
If people don't know better they cannot do better. Ignorance is actually worse than no knowledge at all, because ignorance sends otherwise well-meaning individuals off in strange, often unproductive directions. And all for nothing. As someone once said, "If you hang around nine poor people, it's likely you will be the tenth."
Whatever their color, everyone wants to see some more green (as in U.S. currency), and this represents an opportunity. What would happen if we moved credit scores in poor neighborhoods from an average of 500 to an average of 650 or better? Everything would change. Check cashers and payday lenders would turn into banks and credit unions; liquor stores would be converted into convenience stores and grocery stores. The more consumer empowerment a community experiences as a deep, new character trait, the less consumer protection it or anyone in it needs.
I believe that the poor are an untapped, unleveraged asset for the future prosperity of our nation and that America's inner cities are the last bastion of lost capitalism. I believe that we all lose when we default to a fear-based leadership approach that simply locks up and throws away the keys to unique American assets-our youth-and our only hope for future prosperity, without first exploring whether there are rainbows possible after these storms. We must restore hope and get people moving again by improving their financial literacy and their credit scores, increasing their access to banking and investment, and increasing their self-esteem and access to positive business and personal role models.