How to Narrow The Wealth Gap Between The Rich And The Poor.
Wealth inequality continues to plague America. We hear it all the time: the rich keeps getting richer and the poor poorer. According to an article published on the Fortune website, wealth inequality is growing and getting worse in America. Attempts aimed at addressing this sad phenomenon have been proposed and implemented, including economic stimulus or handouts. Unfortunately, they have not been too fruitful. Could a different strategy or approach help bridge this divide?
Wealth inequality by the numbers
The video below puts this problem in perspective.
Proposed policies to help reduce wealth inequality
Programs and policies aimed at reducing economic disparities between the rich and the poor are numerous. For instance, the Haas Institute for a Fair and Inclusive Society at UC Berkeley has proposed six policies to help reverse or slow this trend. These policies include: 1) increase the minimum wage; 2) expand the earned income tax; 3) build assets for working families; 4) invest in education; 5) make the tax code more progressive; and 6) end residential segregation. In addition, an economic hand-out or stimulus was tested a few years ago.
Economic handouts and rebate checks
According to a wise and old proverb, "Give a man a fish, and you feed him for a day. Teach a man to fish, and you feed him for a lifetime." A fish was given to a lot of Americans in 2008. In that year, as part of his $168 billion economic stimulus package, President George W. Bush distributed rebate checks to about 130 million tax payers. Individuals received up to $600, married couples up to $1200, and families with children received an additional $300 per dependent child. What a good deal that was then! Unfortunately, the effects of this "free" money were short-lived; it did little to help reduce wealth disparity. Do you remember how you spent that money? How long did it last? What if this money was put to a better, long-term and sustainable alternative?
The case for sustainable growth: investing and automatic savings
Policies mentioned above are all good options, but there is a better and more sustainable wealth-building option. When in power, political administrations--Democrats or Republicans--often tout a strong economy or stock market. Regrettably, the wealthy or those with retirement accounts (401ks, individual or Roth IRA accounts, brokerage accounts, etc.) are usually the main beneficiaries of such growth. A better way governments can help people get ahead financially and decrease the wealth inequality is to enact fiscal policies aimed at helping the poor profit from stock market gains and growth. We were on the right path a few years ago, but this effort was phased out.
MyRA: the death of a starter retirement savings account. The My Retirement Account or MyRA was a starter account for low- and middle-income individuals. It was announced and implemented in 2014 by the Obama administration. The program saw some initial success. It was later killed in 2017 by the Treasury Department, due to it not being "cost effective". You can read more about the MyRA program on Forbes or BENEFITS.gov.
401k, brokerage, individual and Roth accounts holders: the real beneficiaries of economic growth. When administrations boast of a strong economy and stock market, those who have retirement or investing accounts are the main beneficiaries of the engines that power wealth. Making self-sustaining investment accounts readily available to the poor is a solid way governments can help its poor citizens invest their way out of poverty.
The bottom line
Wealth inequality is a big problem in America. Policies aimed at tackling this problem have yielded little fruits. Stock market gains account for a great portion of the rich's wealth. If governments can help the average citizen or poor tap into this wealth-building machine, his/her financial flight can be improved significantly. A great way governments can help achieve this is to help set people up with initial automatic investing accounts. Economic handouts are not the solution. They may provide relief in the short to medium term, but in the long term, they do little to help narrow the wealth disparity between the rich and the poor.
Like this article? Please share and leave us your feedback in the comment section and help us improve and grow. Subscribe below to get our latest articles. Here are a few other articles you may find useful: How to invest your tax refund | How to earn free money as a micro investor | Myth debunked: you don't need a lot of money to start investing | How to invest $100 | How investors make money in the stock market | Cash is trash, not king. Invest it! | Stocks vs. index funds vs. ETFs: what's the difference?