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The Ever-Widening Income Gap in America And Why It Exists

The American economic scene has been robust and progressive ever since it took the spot of the world’s largest economy. However, income inequalities have been rising at an alarming rate too. Even after the financial meltdown of 2008, the housing market crash and the stock market cracks, income inequalities have been growing rapidly. The rich are growing richer than ever, CEO pays are at an all-time high, luxury services are increasing and yet thousands of people have to depend on food stamps in every major city.

What drives inequality in America?

Former Fed Chairperson Janet Yellen has stated that the source of wealth for the rich is business, especially those that are privately owned. The richest CEOs in the world are earning their money through public companies while capitalists are making the financial wheel turn through their private businesses. These businesses remain in their control for longer, giving them a larger chunk of earnings.

With adequate investments, especially those in the stock markets, these earnings keep growing with time. This wealth is then inherited by the children of the rich. They also have access to private schools and the best universities and have lesser chances of dropping out. Again, they gain an edge over the rest and the cycle goes on and on.

On the other hand, the poor people are already starved for cash, living paycheck to paycheck. Their credit cards may max out very frequently and they have several loans pending on their account. If their less fortunate parents haven’t saved enough money for their education (which happens less frequently) they have to depend on student loans for higher education. This creates a huge financial burden for them, even before they start working and earning.

While making a living, paying off several debts- right from student loans to car loans and mortgages to credit card loans, they also have to get access to quality healthcare. American healthcare system is already known to be very costly. In such a situation, starting a family could put further stress on an average American’s small resources.

Note that most of them are earning fixed monthly incomes and some of them are working minimum wage jobs which are barely enough to make ends meet. These wages have risen very little after the financial crisis and there have hardly been any changes due to inflation as well.

Who are at risk?

Certain demographics are at a major risk of being at the bottom of the pyramid of financial inequality. Single mothers, low-skilled workers, immigrants and certain ethnicities are at a higher risk of having to depend on soup kitchens and food stamps to survive. The newest entrants in the workforce, recent graduates etc. are also at a major risk of financial troubles which makes them more vulnerable to emotional damage too.

Income inequality in America won’t go away unless there is a solid monetary and fiscal policy answering these needs. Till then, better money management, budgeting and increasing income by working two jobs or joining the gig economy is the only solution.