Can you give two definitions of “CD”? If you answer “certificate of deposit,” in addition to “compact disc,” what does that say about your financial literacy?
What if you knew nothing about banking? What if opening a simple savings account never crossed your mind””because much of your income comes from the government with strings attached?
For one example, if you don’t spend your entire food stamp benefit each month, you lose what is left over and your future monthly benefit may be reduced. So you spend everything each month. You don’t really try to economize when you shop, because you don’t get to keep what you would save.
And your budget is so tight that you have nothing to put in a savings account, let alone to open a six-month CD.
Thousands of Oregonians receive defined-benefit entitlements designed to keep them and their families afloat. These cash transfers help with short-term consumer needs, but they alone won’t get people out of poverty. To truly move away from the edge, people not only need to have stable incomes but have to be able to build assets and plan for the long-term future.
The divide between “haves” and “have-nots” isn’t entirely an income difference; it’s a difference in how people can and do spend their money. Income alone does not reflect ownership of assets, nor does it tell us what is being consumed. It especially fails to tell us if the individual will be able to become self-sufficient in the future.
In addressing poverty, a better alternative to the term “income inequality” is “opportunity inequality.” Opportunity inequality refers to barriers that the poor face in economic and educational systems. Access to credit, quality education and asset building (savings instruments, a car, a home, etc.) result in low-income Oregonians being better off, immediately and intergenerationally.
Poverty is not as much about what or how much a person consumes as it is about limited opportunity and freedom. Addressing opportunity inequality, not just income inequality, can help let everyone in on the American Dream.
Bina Patel is Director of the Oregon Asset Policy Initiative at Cascade Policy Institute, Oregon’s free market think tank. She has a master’s degree in Social Protection Financing from the University of Maastricht in the Netherlands and over ten years of experience working on public policy and direct service in the areas of poverty alleviation and asset building, both nationally and overseas.