Seemingly intractable issues like racial and gender wage inequities and the benefits cliff keep people mired in poverty in America. But these are systemic failures, not facts of nature, and a national financial inclusion strategy that supports investments in economic empowerment, could go a long way toward closing our country’s unconscionable wealth gaps.
Each year, thousands of people living on low and moderate incomes come into LISC supported Financial Opportunity Centers® (FOCs) across the country, in search of career and financial coaching. More than half of them are female heads of household from communities of color, and they seek coaching in the hope—and the very reasonable expectation—that by earning a little more, budgeting a little better, or whittling away debt, they’ll build a better future.
But for far too many, the American dream of financial security is continually undermined by the reality of economic immobility. The fact is, it is so hard to get ahead in America. Forty two percent of U.S. households lack the income to support a “survival budget”– the cost of the cheapest housing, health care, food, transportation, child care, and smartphone plans available. Our current 8.3% inflation rate is also devastating for those working to reach the middle class, and it has been extensively reported how it affects people living on low incomes the most.
If we focus solely on the choices of individuals and not on systems that trap people in economic struggle, we risk reinforcing false and discriminatory narratives of poverty. We also miss an opportunity to imagine large-scale reforms that might make upward mobility the norm in America.
The Inflation Reduction Act, recently signed into law, takes some important steps toward such reform, by lowering household costs for health coverage, prescription drugs and home energy and spurring economic opportunities and job creation. But more needs to be done, and the federal government should be leading the way.
We believe that a national, interagency financial inclusion strategy is critical for bringing about the seismic change in our county needs, a requisite for establishing a truly fair economy and mobility for all. LISC, alongside 114 other public and private sector organizations (ranging from major financial service companies like Citi and Mastercard to nonprofits such as the National Urban League and Prosperity Now), have signed onto a letter from the Aspen Institute urging the federal government to act on this idea.
Investments in financial empowerment programs should be part of a national financial inclusion strategy, to help low-income families navigate systems that are stacked against them. By offering a blend of services – including one-on-one financial coaching, employment counseling, and enrollment support for public benefits like Medicaid and SNAP (food stamps), among others – these programs help reduce the impact on individuals of wider systemic failures.
A wealth of data show these programs work, but systemic change requires policy solutions that go further. The fact that workers for some of the country’s largest and most profitable corporations are widely reliant on Medicaid and SNAP to stay afloat shows that their wages don’t reflect the true cost of labor. The majority of working adults who use these programs work full time in the private sector. Even in New York State, where the minimum wage is rising to $15 statewide, a household with two full-time earners with two kids in daycare cannot cover a “survival budget” in any county of the state. And the federal minimum wage of $7.25 per hour? Not even a single person can make do on that anywhere in the country.
Consider the certified nursing assistant (CNA), for example. Becoming a CNA is a great first step on a pathway that could lead to advanced training as a licensed practical nurse or registered nurse – positions that come with a solid middle-class income or better. And we badly need more CNAs, not fewer. But with an average hourly wage of $14, we are asking these critical care workers – largely Black, Brown, and immigrant women – to perform their duties while living in the toxic stress of poverty themselves. It’s not appropriate, and workers are walking away. A movement in New York proposes to stem a crisis-level shortage of CNAs working in home care by increasing their pay to $22.50 an hour.
That pay raise, while laudable, highlights a second policy challenge: the so-called benefits cliff. As a person increases their hourly wages beyond about $16, they abruptly start to lose eligibility for public assistance. A 25-cents-an-hour raise can strip away food or child-care subsidies, creating a net loss of income until a person reaches roughly $26 an hour. In that window, progress at work literally doesn’t pay, like for a mother in Tacoma, WA, who landed a stable office job and was on a financial upswing until a pay hike to $17/hour meant her subsidized child care vanished; she was crushed to have to quit a job she loved in order to keep her family cared for and food on the table.
Programs like the ones offered at our FOCs do a lot to help people navigate their way around this problem. Some offer higher-level training for jobs in information technology and programming or unionized skilled construction trades, which may allow participants to hop over the benefits cliff to a truly living wage. Career, financial, and income-supports coaches work closely together to help clients strategize their employment trajectory to avoid catastrophic benefits gaps.
But it would make more sense if workers didn’t have to confront this lose-lose dilemma just when they’re beginning to get traction. Income-support programs can – and should – be designed so that as people earn more, their benefits decline incrementally, so they’re still getting ahead on balance.
This more logical approach wouldn’t just assist individual beneficiaries. Income supports help keep our society and economy functioning. SNAP dollars go straight to neighborhood stores, boosting local economies. Public investments in child care keep parents earning and bolster the child-care sector itself, made up mostly of small, women-owned businesses. Direct government investments in the health and education of children almost invariably show high return on investment; some even pay for themselves.
Now is a critical time to act, as the country emerges unsteadily from a pandemic that especially hurt the lowest quintile of earners and people of color. In the slow, jobless recovery from the Great Recession, the wealth gap widened. There’s a real risk history will repeat itself in this decade. Community-based financial coaching and workforce programs are doing their part to prevent that by helping striving families score incremental wins in a really tough game. Policymakers and elected officials should do theirs by changing the nature of the game and embracing an economic inclusion agenda that could solve for pay equity in undervalued (but crucial) jobs, the benefits cliff and so much more. In one of the richest countries on the planet, it doesn’t have to be so hard to get ahead.
ABOUT THE AUTHOR
Lisa L. Glover, Former LISC CEO
Lisa L. Glover served as LISC’s CEO from February 2021 through September 2023. She wasn a member of the LISC National Board of Directors from 2010 through 2023. An active community leader, she previously served as the Chair of LISC Milwaukee’s Local Advisory Committee. Lisa is a former Executive Vice President at U.S. Bank, retiring in March, 2020 after a 33 year career that included leadership roles in Community Affairs, risk management, and process improvement. Lisa holds a BBA in Corporate Finance from Iowa State University and a Master of Library and Information Science from University of Wisconsin.
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