Research Findings

How can we improve low- and moderate-income families’ social mobility?

, and
September 5, 2018

A core belief of many Americans is that society should provide equal opportunity to its members. Embedded in this belief is the idea that hard work is rewarded and that everyone has a chance of success regardless of the circumstances of their birth; many people refer to this as the American Dream. Unfortunately,

In the U.S., 42 percent of adult men whose parents were in the bottom income quintile when they were born remain in the bottom quintile as adults. 62 percent of U.S. men and women born into the top quintile remain in the top two-fifths as adults. Economist Richard Burkhauser and his colleagues describe this phenomenon as “stickiness at the ends.” Our study provides insight into processes that help maintain stickiness and foster social mobility at the bottom.

Low- and moderate-income families face constraints that limit their choices. For example, exploitative subprime mortgages and the Great Recession resulted in Black and Latino families losing more than 50 percent of their wealth between 2005 and 2009, compared to 16 percent for White families. Based on current trends, scholars calculate that it will take 228 years to close the wealth gap between Black and White families and 84 years to close the gap between White and Latino families.

These issues frame our research and allow us to focus on how low- and middle-income families take advantage of social mobility pathways generally reserved for the middle class. Sociologist Glen Elder describes agency as the “choices and actions [individuals] take within the opportunities and constraints of history and social circumstances.” This study examines how some low- and moderate-income families are able to build assets and move to reasonably-priced rental housing in safe neighborhoods with good schools and other amenities, while others are stuck in place.

This study is part of the “Investing in Enduring Resources with the Earned Income Tax Credit Project.” We interviewed 194 households with dependent children who received a tax refund of $1,000 or more during the 2006 tax season. Interviews ranged from 90 minutes to nearly five hours. Participants answered questions about their plans to spend their EITC refund, their pathways to homeownership, and their past and current neighborhoods.

Three Paths of Upward Mobility

We focused on three routes to social mobility: homeownership, concrete plans to buy a house, and residence in a good neighborhood (reported by the respondents as being quiet, safe, and close to amenities). We identified three resources used by participants: housing programs, financial assets, and social networks.

Housing programs were a critical mobility resource because they provided families with access to information and assistance that were similar to pathways used by middle class families. For example, staff at first time home buyers’ programs was aware of pitfalls associated with home buying and advocated for families to ensure they received the most favorable interest rates and loan fees. This knowledge of the housing industry may have protected some of the families from subprime loans and their negative consequences. In addition, Habitat for Humanity allowed families and friends to work on their homes and accumulate “sweat equity” to help pay for the home. Other programs matched what families were able to save, by as much as $3,000, to help them purchase their homes.

Some participants reported the accumulation of financial assets as a pathway to social mobility. About 25 percent of our sample reported saving money for several years in order to purchase their home. For example, a Black married father in Boston reported saving $30,000 from driving a taxi and working up to 12 hours a day. Other families used part or all the EITC refund towards a down payment on their home.

Planning for the Future

Some families who had limited financial resources were able to get support from their social networks in the form of an inheritance and loans for the down payment. In one unusual instance, several members of a congregation in Boston, including the pastor, were bidding on a house. When church members found out that a young couple in their church was also trying to purchase the house, they stopped bidding, which allowed the couple to purchase the home for just $40,000. Families also discussed threats that put them at risk of losing their homes. These threats included insufficient financial resources to pay their mortgage and unexpected and expensive home repairs (e.g., leaky roof).

Some families who were not home owners reported having concrete plans to buy a home in the next few years. They used sophisticated financial management skills to negotiate better terms for credit cards and pay off bills to improve their credit scores and increase their chances of obtaining better interest rates on their mortgage. They also saved their money. A few families entered into rent-to-own agreements.

Our final social mobility route involved moving to a good neighborhood to access resources. Families described good neighborhoods as safe, quiet, and tranquil. Residential mobility gave families better access to extended family to provide social support and childcare, cheaper housing, and neighborhood amenities such as parks, grocery stores, jobs, and their child’s school.

Policy Implications

The issue of social mobility among low- and moderate-wage families is especially pressing because policymakers face a challenge when trying to maximize federal and local budgets and ensure that all families have concrete opportunities to climb the mobility ladder with as few barriers as possible. Our research shows that there are multiple pathways to social mobility for families with stretched budgets and that policymakers could build upon what families are already successfully doing.

Additional funding for first time home buyers’ programs could give families a variety of mobility resources such as knowledge about the risks and benefits of homeownership. Program staff could serve as advocates to ensure that families receive the best possible interest rates and loan fees.

Saving incentives like individual development accounts (IDAs) could be expanded because of the significant role the matched dollars play in allowing families to buy a house. A majority of states have implemented the program and families typically receive $2 for every $1 saved, which is a 200 percent increase in wealth. It is also important to provide more affordable housing in good neighborhoods and to improve the quality of housing and access to resources in low-income and racially segregated communities.

This portfolio of mobility policies would play a key role in decreasing “stickiness” at the bottom for many low- and moderate-income families.

No Comments

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.