As a mission-driven organization, CSBDF’s goal is to mitigate the barriers that exist for people to access the resources that they need in order to prosper. Our vision is to expand economic opportunity for all people, recognizing that certain populations have faced historical and structural challenges that have prevented them from accessing opportunity over generations. Underlying our efforts is an analysis of the inequality that pervades our economy and society, and our programs and services are designed to mitigate its impacts.
How we talk about inequality, and the role of individuals and and our institutions, is critical to how we address it. This is the subject of a report published by the Federal Bank of St. Louis, The Political Economy of Education, Financial Literacy, and the Racial Wealth Gap. In it, the authors make the point that much of our discourse on how and weather people can achieve economic mobility is misdirected, focusing on the role of individual and family choice. However, given the historical record and economic evidence, we should instead focus on the role of institutional racism and structural barriers that constrain the circumstances and access to choice that fuels inequality.
There is already ample evidence for the growing wealth gap in the US, and the particularly acute gap along racial and ethnic lines. What this paper points out is that the public discourse on reducing inequality has focused largely on the need for financial education and incentivising the right kind of behavior (increasing savings, reducing bad debt, etc). While it is true that financial education and management skills are important, we must also recognize that this focus on individual choice assumes that people have access to choice. It also makes assumptions about what individuals value, and places the burden of mitigating inequality squarely on the shoulders of individuals, rather than it being a public responsibility.
The most important assertion that the authors make is that we must reject the idea that “the racial wealth gap is a matter of financial literacy, choice, and agency, as opposed to inheritance and structure. It does not offer sufficient attention to the intergenerational and iterative role of wealth creation.” People who have low wealth, and limited ability to grow and increase wealth, simply do not have the luxury of choice. Rather, families with access to wealth both are able to pass it down through generations and are able to use their wealth to generate more of it. When race and ethnicity are factored in, the choices become even more constrained.
When we shift the focus back onto systemic inequalities and our collective responsibility, we can begin to develop impactful solutions. This is particularly important as we think about what types of solutions we invest in. The danger in continuing down the path of individual behavior and choice is described in this sentiment:
If behavioral modification, particularly with regard to personal and human capital investment, is the central issue, why fund government agencies and programs, which, at bets, misallocate resources to irresponsible individuals and, at worst, create dependencies that further fuel irresponsible behavior?
If, however, we adopt the view that inequality is fueled by our economic, political, and social structures, we can start to chip away at it. At the same time, it is important to maintain programs that are already working to level the playing field. Programs like the CDFI Fund are founded on the understanding that access to capital is limited due to the way capital markets operate and are structured. The CDFI industry also acknowledges that many people can not access capital because the financial hardships they have faced have, again, been a result of structural inequities in our economic and financial systems. Additionally, accessing capital to grow businesses and increase financial assets is one way to bridge the wealth gap.
Ultimately, how we talk about inequality, in personal conversations and in the public discourse, frames how we approach solutions and whether we view it as a societal responsibility. History and data show that inequality was not created, nor does it persist, by accident. The sooner we accept this, the better able we will be to change its course.