One missed paycheck or a sudden big expense, like a medical emergency or major car repair.
For 60% of Detroit families, a new study indicates, this kind of unexpected financial challenge would cause them to be unable to meet their basic living costs, and they would fall below poverty level. It’s a frightening degree of economic insecurity that the majority of Detroit families live with, day in and day out.
Nationally, 40% of families are at such risk. These figures are among the findings of a comprehensive study by Prosperity Now, an organization that advocates for better opportunities for lower-income families. Southwest Solutions is a Prosperity Now “Community Champion,” meaning that Prosperity Now recognizes our organization as a key partner working on the ground to advance social and economic equity.
The report shows that the financial vulnerability of lower-income families is increasing even as the American economy is said to be robust. This disturbing discrepancy stems from the widening gap in wealth between well-off households and low-to-moderate (LMI) ones. This growing gap is even wider for LMI Black and Latino families.
The study reveals in stark terms how pronounced the racial wealth disparity in our country has become in general. For every $1 of wealth that White households own, Black households own only 6 cents, and Latino households own just 13 cents.
“If this inequity is the reality during a ‘booming’ economy, how will households of color fare when the next economic downturn hits?” asks the study.
In Detroit, the report shows, about 30% of all households have zero or negative wealth (meaning that their debt is greater than their assets). In addition:
- One in five Detroit households have no bank accounts. This is three times higher than the national average.
- Two of every three Detroit households who are renters spend more than 30% of their income on housing costs, placing them at heightened risk of eviction or homelessness if their income declines or they suffer a financial emergency.
- About 43% of Detroit households who are homeowners spend more than 30% of their income on homeownership-related costs, placing them at heightened risk of foreclosure if their income declines or they suffer a financial emergency.
All of these numbers together paint a worrisome economic picture of the city, particularly of its struggling neighborhoods. Poverty and need continue to increase in Detroit, even as vital programs and services that constitute the social safety net continue to endure funding cutbacks and detrimental policy changes.
The Prosperity Now report makes a number of recommendations to address the economic vulnerability of LMI families, including:
- Protecting and expanding safety net programs that serve the needs of LMI families.
- Creating new programs that allow more working families to save and have their savings matched. In addition, families should receive free financial coaching to help them achieve their wealth-building goals.
- Promoting and incentivizing more opportunities for affordable homeownership.
- Changing the way credit reporting and scoring are done to be fairer and more forgiving.
- Enforcing fair lending standards and combatting historically discriminatory lending practices.
These and other recommendations are “essential to making sure all families have a fair shot at building financial security and wealth,” the report states.