It’s Not You, It’s the Economy: The Reality of Wealth Inequality

For us normal folk who make up the lower and middle class, becoming financially independent and stable has always felt like an uphill battle. But if it feels like that hill is getting steeper in recent years, that’s because it is.

Over the last several decades, wealth inequality in America has made the rich richer, the poor poorer, and those in the middle nearly obsolete. The debate around wealth inequality is heated. Not over whether it exists, because it undeniably does, but whether wealth inequality benefits society.

Spoiler alert: it doesn’t.

So why do some people argue that it does? Some economists claim that supporting the prosperity of the rich will allow them to invest into the economy, and the benefits will trickle down to the lower rungs of society. Hence the term “trickle-down economics.”

But this economic model doesn’t account for one very important thing: greed. The reality is that when the rich get richer, they invest in themselves. This widens the wealth inequality gap, minimizes opportunities for the middle class, and forces lower-income families into even deeper poverty.

What is Wealth Inequality?

Wealth inequality is exactly what it sounds like. The wealthiest people of society accrue wealth at a higher rate than lower-income households. Over time, this widens the gap between rich and poor, making it harder for lower and middle class families to achieve financial stability and accrue wealth within their lifetime.

So why is this a huge problem?

Put simply, when people have money to contribute to society, it’s better for the economy. The average household income should increase over time to accommodate for the growing cost of living. This ensures that people can maintain a good quality of life and invest back into their communities.

However, since the 1970s, the American middle class has been steadily shrinking, meaning that the richest members of society have way more wealth than they need, leaving everyone else with barely enough to get by.

To make matters worse, the top 5% of American families have experienced the most rapid growth in income. These are people who have money coming out the wazoo. And to nobody’s surprise, they’re not using it to uplift their communities. In fact, lower-income families have experienced the least growth in household wealth and are struggling to keep up with inflation.

Why Wealth Inequality is Hitting Millennials the Hardest

Household wealth is one of the most important indicators of financial security. It includes your assets, like your home equity and savings, minus your debt, like your mortgage and student loans. Wealth allows you to save for retirement, bounce back from economic downturns and provide a better future for your kids and grandkids.

Wealth inequality limits the lower and middle classes and gives an unhealthy dose of power to the rich. With power, comes great responsibility like public policy, funding community initiatives, and dictating workplace practices. And it’s no surprise that the wealthy tend to funnel their money into initiatives that support them, creating a loop of exponential wealth for the top tier of society.

Unfortunately, this means that not enough money is going to programs that support the lower and middle classes, like quality education, a livable minimum wage, and affordable housing.

Which is particularly bad news for Millennials, the short-end-of-the-stick middle children of modern society.

From the 1980s to the early 2000s, the economy was prosperous for most people (well, most white men and their families) but wealth inequality was on the rise. And in the middle of that perfect storm, the Great Recession hit in 2008 when the oldest Millennials were in their mid twenties and just starting to become homeowners. Unlike high-income households, middle income families are dependent on home equity in order to build wealth. When the housing market collapsed, it hit the middle class where they were most vulnerable, especially Millennials, many of whom were first-time homeowners.

While economists and politicians claim that the economy has recovered from the Great Recession, household wealth has not, with the median net worth of American families being no higher than it was two decades ago.

With student debt and housing costs skyrocketing, America’s middle class is living paycheck to paycheck and lagging behind previous generations financially. This is delaying Millennials’ ability to save for retirement, purchase a home, pay off debt and invest—all key aspects of building wealth.

And for low-income Americans, it’s even worse. The disparity of wealth makes it nearly impossible for low-income families to make ends meet on minimum wage. The barriers for low-income families are immense, making it more difficult than ever to afford a college education, get a high-paying job and climb the socio-economic ladder. And for Black and indiginous folks and POC, this financial disparity is a whole lot worse after literal centuries of economic oppression.

Credit Unions and Wealth Equality

The trouble with wealth inequality is that the people who want to change it the most are often the ones with the least power. And no matter what Dave Ramsey says, you simply cannot budget your way out of a system built to make you fail.

Traditional banks are one of the biggest contributors to wealth inequality. They charge astronomical fees and interest that drain your accounts and line the pockets of rich bankers. They punish you for being poor (hello, overdraft fees). And then they deny loans to people who need them the most, favoring wealthy borrowers with perfect credit.

Every aspect of the credit union model turns traditional banking on its head. Credit unions aren’t owned by rich white men. They’re owned by you, the members. Which means that interest and fees, which are much lower at credit unions than they are at banks, are used to support the financial well-being of members. Many credit unions even partially repay fees and interest at the end of each year.

Credit unions are locally owned and invested in your community, your families and your financial standing. And it’s not just talk—their business model is designed to support wealth equality with lower fees, interest rates and loan qualifications. It’s how banking should be.