4/6/2012 3:54 PM ET|
What the poor can teach the rich
Those on the low end of the income scale can teach the rest of us important lessons about empathy, charitable giving and the realities of economic mobility.
Wow. I thought taxes were a hot-button issue. But taxes are nothing, nothing, compared with how we feel about social and economic classes.
My column "Why are the rich such jerks?" -- which summarized some recent research about the behavior of wealthier people compared with poorer people -- drew more than 600 comments on MSN Money and 1,700 shares on Facebook.
Many people were so busy condemning the rich, the poor, each other or the research that they missed my point: that stereotypes about rich jerks could give some people an excuse not to take care of themselves financially. Who wants to be wealthy if the wealthy are all vile, greedy, evil creatures?
Just as clichés about the rich are unhelpful, so, too, are stereotypes about the poor. Dismissing all low-income Americans as losers who deserve their fates, or as powerless victims of terrible circumstances, is no more accurate than saying all wealthy people are jerks or they're all meritorious (exhibit A: Paris Hilton).
I find it more interesting to see what the different ends of the social and economic spectrum can teach each other. That's why I wrote "What the 1% know about money" and why I'm now writing its counterpart.
Here are some of the things the poor can teach the rest of us:
How to empathize. People in lower socio-economic ranks are better able to read and understand other people's emotions, according to studies conducted by researchers from the University of California and the University of Toronto.
"Lower-class individuals, relative to their upper-class counterparts, scored higher on a measure of empathic accuracy, judged the emotions of a stranger more accurately and inferred emotions more accurately from subtle expressions in the eyes," the researchers noted in their paper, "Social Class, Contextualism and Empathetic Accuracy," published in the journal Psychological Science.
The researchers speculated that poorer people were more likely to "live lives defined by threat," which required them to be more vigilant.
In a world that seems increasingly dogmatic, polarized and shrill, I think we could all use a little more empathy. Empathy connects people and builds trust. It breaks down barriers, leading to more understanding and cooperation. Being able to put ourselves in each other's shoes makes us better people and better citizens.
How to be compassionate. Other studies by the same researchers found lower-class people were more likely to be helpful and generous than wealthier folks. But those who specialize in philanthropic research have long known that poorer people give away more of their incomes, proportionately, than richer people.
Independent Sector, a nonprofit that tracks charitable spending, found in 2001 that households earning less than $25,000 a year gave away an average of 4.2% of their incomes. Those with incomes of more than $75,000 gave away 2.7%, on average.
The federal Bureau of Labor Statistics' latest Consumer Expenditure Survey shows a similar trend, with cash contributions to charities generally shrinking as incomes rise:
|All Americans||$5,000 to $9,999||$10,000 to $14,999||$15,000 to 19,999||$20,000 to $29,999|
|Average income before taxes||$62,481||$8,082||$12,606||$17,483||$25,001|
|Average % of income given to charity||2.6%||4.4%||4.1%||4.5%||3.4%|
|$30,000 to $39,999||$40,000 to $49,999||$50,000 to $69,999||$70,000 and up|
|Average income before taxes||$34,762||$44,734||$59,253||$129,151|
|Average % of income given to charity||3.5%||3.2%||2.7%||2.2%|
|Source: Consumer Expenditure Survey, 2010|
These are pretax numbers, but the after-tax numbers are very similar.
What fascinates researchers about these numbers is that they seem counterintuitive. The poorer you are, the less discretionary income you have; most of what you make is eaten up in basic expenses. Logically, the higher-income folks have more discretionary income to give -- but they don't, at least not at the rates that lower-income people give.
Another interesting trend is where the money goes. About 41% of the $89.9 billion donated to charity in 2005 by households with incomes under $100,000 went to causes that helped the poor meet their basic needs, according to a study (.pdf) by the Center on Philanthropy at Indiana University. Of the $51 billion donated by households with incomes above $1 million, less than 15% benefited causes that helped the poor. The very wealthy tended to favor health- and education-related charities and to give to religious causes over giving to the poor.
Where you come from matters. The middle class is still pretty fluid in America. But if you're born either rich or poor, you're more likely to stay that way.
About 36% of Americans raised in the middle class (defined as the middle fifth of all incomes) move to a higher income bracket as adults, according to research by the Pew Research Center's Economic Mobility Project. A somewhat larger group, 41%, move down economically, and 23% stay in the middle class.
Meanwhile, 62% of Americans raised in the top fifth of incomes stay there or in the next-highest tier, while 65% born in the bottom fifth stay in the bottom two-fifths.
Another study, for the Institute for the Study of Labor at the University of Bonn in Germany, found the U.S. had less economic mobility than some European countries, including famously class-bound Britain. The researchers found that 42% of American males raised in the bottom fifth of incomes remained there as adults, compared with 25% in Denmark and 30% in Britain. Only 8% of American men who started out at the bottom rose to the top income quartile, compared with 14% in Denmark and 12% in Britain.
Obviously, mobility exists. But there are head winds at either end of the economic spectrum. Wealthier families can use their resources to get good educations for their kids, increasing the odds they stay at the top. Poorer families don't have the same access and may not understand how important education and their own savings are to their kids' economic futures. Consider the following:
- Education. Americans who start at the bottom of the income ladder quadruple their chances of making it to the top when they earn a four-year degree, the Pew Economic Mobility Project found. But parents who aren't college-educated often don't understand how important a degree is to their children's futures. There is a stronger link between parental education and children's socio-economic outcomes in the U.S. than in any other country investigated, the project found.
- Parental savings. People who save, even on low incomes, tend to move up economically, and so do their kids. Seventy-one percent of children born to "high-saving, low-income" parents moved up from the bottom income quartile over a generation, compared with 50% of children of "low-saving, low-income" parents. Among adults who were in the bottom income quartile in 1984-89, 55% moved up economically by 2003-05 if their initial savings rate was high, compared with 34% who left the bottom if their initial savings rate was low.
Here's what I glean from all this:
- If you're doing well economically and you come from a well-to-do family, a little humility may be in order. You don't want to be that person that former University of Oklahoma coach Barry Switzer described when he told the Chicago Tribune, "Some people are born on third base and go through life thinking they hit a triple."
- If you come from a poor family and want to better your circumstances, prioritize saving and education, for yourself and your kids. You may find inspiration in the stories of bloggers who came from poor backgrounds and went on to do well, including Get Rich Slowly's J.D. Roth, The Simple Dollar's Trent Hamm and MSN Money's own Donna Freedman.
Liz Weston is the Web's most-read personal-finance writer. She is the author of several books, most recently "The 10 Commandments of Money: Survive and Thrive in the New Economy" (find it on Bing). Weston's award-winning columns appear every Monday and Thursday, exclusively on MSN Money. Join the conversation and send in your financial questions on Liz Weston's Facebook fan page.
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