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The American dream is out of reach for many today

Source: Scripps Howard News Service
Date: March 16, 2005

In an earlier era, Americans who didn't strike it rich at home could take Horace Greeley's advice to "Go West" for new opportunities to reinvent their lives.

World War II gave way to another kind of mobility. The GI Bill and an end to legal segregation ushered in "a period when people from poor backgrounds were able to get a college education, buy a home and start a business," said New York University wealth expert Edward Wolff.

These days various new studies suggest that the recipe for financial success may depend more on having successful parents than pulling yourself up by your bootstraps.

Sherry Sams, 37, typifies the dilemma facing families today who are chasing the American dream. Sams, who lives in San Antonio, grew up believing that a college education would open doors to the white-collar world. She parlayed her college degree into a steady white-collar job.

But when professional demands collided with single parenthood, Sams traded in her steady paycheck for the hourly wages of a one-woman housekeeping service, complete with the flexible hours that allow her to take care of her daughter.

"Just like education was my parents' priority for me, I stress schooling to Kaela and hope it helps things go easier for her," Sams said of her 9-year old daughter. "That's what we're shooting for when it's tough to fight your way up."

Such steadfast attitudes illustrate an America that persistently clings to a dream that has brought successive waves of refugees to our shores since the 1600s in search of a better life for themselves and their children.

Indeed, the booming 1990s held out hope that Americans had finally reached the promised land: Poverty fell, wages rose, most people got richer and the rich got richest of all.

"There were fewer poor families and more families who were wealthier" in 2001, writes Federal Reserve economist Arthur Kennickell in his study, "A Rolling Tide," drawn from Fed surveys of Americans' consumer finances done every three years.

He notes that "household wealth at the end of 2001 ... stood at more than twice the level in 1989 and in inflation-adjusted terms, was almost 50 percent higher." He adds that "the rise was particularly striking for the group with $1 million or more of wealth."

On the other end of the money spectrum, Americans with negative wealth are most often under 35 and indebted from college loans, car notes and a first mortgage, Kennickell found.

Sams, along with almost a quarter of respondents to a recent Scripps Howard News Service poll, are more pessimistic than ever.

Twenty-four percent of the 1,001 respondents polled by the Scripps Survey Research Center at Ohio University earlier this year report that it has been harder to reach financial success for them than it was for their parents. Another 48 percent predict it will be tougher still for their children.

About half said getting ahead financially was easier for them than for their parents' generation, while 45 percent expect success to be just as easy or easier for the next generation.

Trend-watchers looking for changes in family fortunes have turned to the 40-year Panel Study of Income Dynamics, which has followed the finances of more than 5,000 American families and their 65,000 members for three generations. Economists often break down income and wealth into quintiles, or one-fifth blocks of the population.

Following these families, economists Katharine Bradbury and Jane Katz of the Federal Reserve Bank of Boston found that income mobility has declined since the 1960s. Families' ability to move to a higher level declined in the 1980s and 1990s.

Two-wage-earner families were a major source of financial advancement starting in the late 1960s, the researchers found: "While a working wife was not necessary for a family to move ahead, having one definitely helped."

Peggy Felton, a 47-year-old nurse from Dumfries, Va., worries about the pressures placed on young, dual-income families, including the two grown children and new grandchild she and her defense-industry engineer husband Nathan are helping out.

"In my generation it was OK if one worked as the other took off to take care of the children, but you cannot get that family back these days because both parents must work," she said. "They say their prayers, go to church Sunday and just hope their family will survive."

Frank Stafford, a University of Michigan economist who oversees the panel-study program, isn't surprised by the pessimism expressed toward the future by Scripps poll participants. "Our data show the extended dependency of children into their 30s is a real phenomenon, and these people are reflecting that real concern," he said.

When it comes to moving up the wealth ladder, American University economist Thomas Hertz reports in "Rags, Riches and Race" that opportunity is hard to come by:

_ Some 37 percent of children born to the richest 20 percent of panel-study families stayed on top.

_ About 42 percent born to the poorest 20 percent wound up at the bottom where they started, and another 24 percent moved up just one rung.

_ Only 6 percent of the poorest made it to the top fifth of wealth.

Upward mobility has been especially difficult for black families.

"There was a significant narrowing of the black-white wage gap in the 1960s that might have been a one-shot benefit stemming from the civil rights movement and Great Society, but the world has gotten much more unequal since then," said Hertz. "America is not a strict meritocracy when it comes to distributing jobs, nor do American children have the same educational opportunities to develop their talents."

Even the wealthiest Americans are not a static cast of characters. Of the people who appeared on the first Forbes 400 list in 1982, three-fourths fell off within 15 years.

Today's Forbes 400 list, with a cumulative net worth of $1 trillion, is topped by Microsoft founder Bill Gates, three other computer billionaires and five heirs of Wal-Mart founder Sam Walton.

Only No. 2 Warren Buffett is a member of the "investor class" that dominated American wealth until World War II.

The current list of America's richest is dominated by what Thomas Piketty and Emmanuel Saez call the "working rich" _ top taxpayers who derive most of their income from wages and salaries including performance-based stock options.

Studies by the Federal Reserve's Kennickell show, however, that one reason America's wealthiest families have fortunes that seem to fluctuate from year to year is that many are business owners, real estate moguls and entrepreneurs who can vary their income, wealth and tax bills by sizable sums by changing investment and tax strategies.

Despite a culture raised on the American dream, success stories may be more fiction than fact, according to sociologists Robert Perrucci, Earl Wysong and David Wright. Their work on parent-child financial changes since the 1970s concludes that your position on the class scale depends on who you and your family know and where you were educated.

"There is not very much class mobility in the United States, and there never has been," said Wright, a Wichita State University professor. "What mobility has existed has been mostly for the people who are affluent, the people who have resources to become richer."

Whether it is harder to get ahead financially in today's economy compared to previous centuries is impossible to prove because the data don't exist.

Writer Horatio Alger may have sensed that the American dream depended on more than intelligence and determination when he penned more than 100 novels in the late 19th century.

In them, his young heroes always got ahead by hard work, pluck, faith _ and by marrying the boss's daughter.