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Getting unstuck: Why some people get out of poverty and others don't

Published: Sunday, Nov. 10 2013 6:00 p.m. MST

That 23-point difference shrinks when comparing the percentage of whites and blacks that climbed to the middle fifth. Twenty-five percent of blacks at the bottom made the middle while 35 percent of whites did — a 10 percent difference.

"This underscores the persistent race gap in economic mobility," Elliott says.

Savings and wealth

One of the more surprising ways people can jump the income ladder has to do with savings.

Of course people can have an increase in income without having greater savings or wealth. Just because somebody makes more doesn't mean they won't spend everything. But when looking at who gets out of poverty, savings make a big difference.

"We've seen hints in Pew's research that those who were financially mobile were also more financially secure," says Elliott, "but this research really shows the magnitude of the difference between savings and wealth for those who move up versus those who don't."

Elliott says Pew's research shows that while a vast majority of Americans end up making more than their parents, only half have more wealth.

But those who rose from the bottom fifth of income had six times higher median savings than those who didn't move up — meaning liquid savings such as checking and savings accounts, real estate, stocks, vehicles and so forth.

Their median wealth was eight times higher and their median home equity was 21 times higher.

The Pew report is careful to point out that this does not imply that having more savings or wealth result in upward income mobility as much as it shows that the two go "hand in hand." The savings, instead, may make it easier for families to make the investments in things such as higher education. Elliott calls it a "cushion of savings and wealth to fall back on during hard times and to invest in their future economic security and mobility."

If people had 10 times more savings than the people at the bottom, they were five times more likely to leave the bottom.

"It underscores that financial security and economic mobility really go hand in hand," says Elliott. "The more financially secure families can become — even at the bottom — they can use that to leverage future economic mobility."

Timothy Flacke, executive director of Doorways to Dreams, an organization based in Allston, Mass., that encourages savings among lower-income people, says savings is a key ingredient to build economic prosperity and mobility. "(Savings) can help a household successfully navigate financial emergencies, place a deposit on an apartment in a safer community, or help finance the cost of higher education," he says.

Common sense

Smeeding says the Pew analysis is a "common sense report."

"It makes sense," Smeeding says. "If you have more assets, you are more likely to get out of the bottom. If you happen to have two full-time workers, you are more likely to get out. If you happen to graduate from college, you are more likely to get out. So those are all things that help people, who otherwise would be stuck, to move up. But we know there are a lot of people who get stuck there."

Smeeding says the study's data have a few limitations (in part, that lack of data about Latinos).

At the beginning of the month, Smeeding spoke in Ohio with a professor who told him about how many non-traditional students are graduating from college. "But when you get a BA in Akron," she told him, "there are no jobs."

But sooner or later, Smeeding says, that BA will pay off. "But whether it will pay off in Akron," he says, "I don't know."

One of the keys to mobility, Smeeding says, is being mobile — being in a city where there are more jobs.

Savings is budgeting

When Paul Golden, a spokesman for the National Endowment for Financial Education based in Denver, hears that having savings is linked to climbing the ladder of income, he sees something behind the savings: budgeting.

"People who are saving more and increasing their liquidity have done more to budget," he says. "They look at how they are spending their money. If you take those steps, you will increase your wealth."

Golden says even at lower levels of income, savings is possible — and can start with just saving change. He also says that many poor are "unbanked" and so rely on check-cashing services that charge them 10 percent. "They could be saving that 10 percent," he says.

And maybe start their way up the income ladder.

EMAIL: mdegroote@deseretnews.com

Twitter: @degroote

Facebook: facebook.com/madegroote

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