Feels like financial fragility
Half of the US population owns just 2% of the wealth
Take the population of the U.S. and split it down the middle. There’s half. Now, take the wealth of the U.S. and split it down the middle (50%), then half it again (25%), and again (12.5%), and again (6.25%), and again (3.13%), and finally slice off just a bit more (2%) — there’s two percent.
Meanwhile, the top ten percent own 72 percent of the wealth.1
I first encountered this data in Thomas Piketty’s A Brief History of Equality, his slimmer ~275-page summary of his own ~700-page book. We certainly agree on the problem, though Sawa proposes a novel solution: enhancing access to credit and reducing financial fragility for the underserved so people can get into and stay in their homes. Let’s take a closer look at the problem.
Inequality creates feelings of financial fragility.
In our research with Common Cents Lab, part of the Center for Advanced Hindsight at Duke University, those who are worried they might miss mortgage payments are worried specifically about encountering a financial shock or unexpected expense. Further, those who worry about their mortgages also have job insecurity, health complications, and/or low income.
It makes sense to worry: a missed payment isn’t just a missed payment, it’s the first snowflake in a snowball of fees and financial consequences: Miss a payment, get a late fee. Overdraft, pay an overdraft fee. Take out a loan from the only available lender, owe predatory interest. Foreclosed or evicted, then add the expense of temporary housing and moving. Not to mention the long-term costs of having weak or thin credit: higher interest rates, limited access to safe and affordable housing… Unfortunately, the list goes on.
Save up, worry less doesn't cut it.
Popular financial advice encourages saving six to eight months of income to buffer financial emergencies. However popular the advice is, people aren’t achieving the goal. In Pew’s 2015 Survey of American Family Finances, median households with incomes less than $25,000 have saved only six days worth of income, not six months.
Trying to save six months of income is so near impossible it’s disheartening. As we all well know, an unachievable goal is counterproductive; it’s discouraging, not encouraging.
It’s also a gating mechanism. If your first goal is to buffer yourself against financial emergencies by saving six months of income, and are attempting to do that, but are only three percent of the way to that goal, every other goal is put out of reach. Buy a house? Invest in a business? Put your money into a higher-return vehicle? That’s all out of the question.
Access to capital can change the wealth trajectory for generations.
In the world of credit, capacity is the percentage of revolving debts to gross income — in other words, how much financial cushion you have. Since most financial shocks are small dollar, access to a modest amount of additional capacity would give households the assurance that when a financial shock hits, they’ll be able to weather it. Currently, this is an assurance and a hope less than half of U.S. households know. Instead of repeatedly getting knocked back by the inevitable financial hits as they struggle to save, they can build for the future.
Sawa has an opportunity to serve as everyone’s well-stocked emergency fund and a community that’s like friends and family to turn to when financial shocks inevitably arise.
“That is, of total wealth of land, buildings, business assets, and industrial and financial wealth of all kinds, net of debt.” Thomas Piketty, A Brief History of Equality, trans. Steven Rendall (Cambridge: Harvard University Press, 2022), 32.