Yale School of Management’s Social Impact Lab kicked off the 2019-20 academic year with a visit from Andrea Levere, President Emerita of Prosperity Now. Prosperity Now is a Washington, D.C.-based nonprofit that engages in research, program design and delivery and advocacy to expand economic opportunity for low-income families and communities in the U.S. A graduate of the Yale SOM Class of 1983, Ms. Levere returns to SOM as a 2019-20 Executive Fellow at the International Center on Finance, a role that will enable her to continue to advance the conversation on wealth inequality in the U.S.
Much of Prosperity Now’s research focuses on wealth inequality, working to understand the key drivers of financial security and the differences in financial wellbeing across race, gender, disability, and geography. Through its research, Prosperity Now aims to generate new insights and expand our understanding of inequality to develop tailored solutions that advance financial stability, wealth, and prosperity. Their flagship research product, the Prosperity Now Scorecard, is the nation’s most comprehensive benchmarking tool on how the nation builds and protects the assets of its residents.
To frame the discussion, Ms. Levere reviewed the major drivers of wealth inequality across the U.S. before highlighting specific recommendations. She began by noting that while income disparity alone is insufficient to understand the complexity of Americans’ financial challenges, it is still a major impediment to economic mobility. Approximately 20% of jobs in the U.S. are low-wage. Even for those working full-time, wages are often insufficient to move households above the poverty line and not stable enough to give households financial security. Approximately one in five households in the U.S. experiences significant fluctuations in income from month to month, and of those, 40% have struggled to pay their bills during periods of oscillation. One of the major reasons for income volatility is the erosion of risk-mitigating institutional factors such as long-term employment guarantees and participation in pension plans. As a result, many households no longer benefit from stable income and are consequently forced to grapple with uncertainty.
While income stability is a challenge for many American households, the most significant driver of financial insecurity is arguably liquid-asset poverty, defined as having insufficient savings to get by at the poverty level for three months if your main source of income is disrupted, such as through a job loss or an illness. An astounding 40% of U.S. households are liquid-asset poor, and the statistics are particularly stark for Black and Latino households at 63%. Contrary to popular belief, asset poverty is not just evident at lower income levels. Over 20% of households in the 4th income quintile (where the upper limit is around $110,000) are considered asset-poor.
Another problem for asset-poor households is that many do not have institutional access to protect and grow what little assets they possess. The financial services sector has evolved immensely in recent years with companies now offering a range of innovative products for consumers; however, approximately one-fourth of the U.S. population is underserved financially—either completely unbanked or underbanked (using alternative financial services despite having a mainstream financial account). When households do not use access to institutional financial services, they are forced to spend a significant portion of their income on financial transactions – income that could have been allocated to other uses, including asset accumulation.
Fortunately, there are evolving strategies to address wealth inequality. Ms. Levere began this segment of the discussion with a review of key lessons she had learned at SOM, namely matching sources and uses of funds to ensure resource allocation aligns with needs and realities. Another important lesson is the recognition of equity as a driver of growth – not just for corporations, but for nonprofits and low-income households as well. Other lessons involve taking a comprehensive approach to understanding the real costs of working and living and developing policy solutions to mitigate these costs.
Ms. Levere then provided an overview of Prosperity Now’s Household Financial Security Framework. The framework seeks to empower households to manage their financial wellbeing through financial skills training, savings, asset ownership, and consumer protection. It is predicated on the understanding that financial capability and assets can increase earnings capacity and financial wellbeing over time.
Ms. Levere concluded the discussion with specific policy recommendations focused on six key areas: income, emergency savings, higher education, retirement savings, homeownership, and consumer protection. While she acknowledged the uphill battle associated with policymaking, Ms. Levere is optimistic about the future and steadfast in her advocacy.
Significant work remains to be done on both our understanding of wealth inequality and solutions to reverse the current statistics. While much of the presentation offered a sobering illustration of the challenges many families face, Ms. Levere remains energized around these issues and is highly encouraging of students interested in putting their business school education to good use in service of business and society.
By Alexandra Sing, MBA ‘20