America’s Cycle of Poverty

By: Lauren Snowden
​Macau Photo Agency on Unsplash

Most families living off of minimum wage with only one guardian working, as is the case for most low-income families, are considered impoverished by the United States Federal poverty guidelines (“2019 Povery Guidelines”). The majority of low income families living below the poverty guideline have such “limited or no resources” that they are unable to “create opportunities to advance themselves” economically and in turn, are stuck in their own poverty (Dubay). An American cycle of poverty continues in which the limited resources of lower-income families immobilizes economic growth. A 2015 study conducted by a team of economists from Harvard along with successful economists from around the country, found one out of every three individuals who had grown up “in the top one percent of income distribution” had reached a salary of at least $100,000 by the age of thirty. The chances of income improvement for someone who was raised “in the bottom half of income distribution” was much slimmer. Only one out of every 25 adults who grew up in an area of concentrated poverty had reached a cumulative family income of $100,000 by the age of thirty (Leonhardt). Affluent American families remain wealthy while lower-income families remain in poverty.

 The cycle of poverty America faces today was originally ensured by prejudice-based practices such as Redlining. Redlining was a legal practice throughout the 1900s built upon “racial housing discrimination” cultivated by a “system of disinvestment in communities of color” (Scheper). Bankers would outline the areas they deemed as dangerous investments-consistently lower-income communities of color-in red and share the maps with other businesses and banks. Redlining illustrated communities of color as high risk for businesses, and because of that, bankers often “refused to invest in those areas” while lenders would not “make loans or offer borrows” (Scheper). Without business opportunities or community investment, it was impossible for concentrated areas of poverty to improve their economic status. Redlining prevented economic growth and development in these communities, ensuring that historically poor neighborhoods remained poor and power was kept in the hands of those who already had it. 

Many bankers and lenders continued the practice of Redlining because there was no law to encourage lower-income community investment. Society continued to allow the injustice of Redlining until 1977 when the American government publicly recognized the detrimental effects of Redlining practices and enacted the Community Reinvestment Act (CRA). The CRA “requires the Federal Reserve” as well as other federally run banking regulators “to encourage financial institutions to help meet the credit needs” of all residents in their neighborhoods of service, “including low- and moderate-income” families (“Community Reinvestment Act”). The CRA prevents financial institutions from denying a consumer business on the basis of the neighborhood in which they live. Encouragement of investment aims to increase the capital of communities by allowing for a wider range of stable financial opportunities. 

The effects of Redlining and the mindset it created among investors reverberates throughout high poverty concentrated neighborhoods and/or communities of color today. The New York Times reported “three out of four neighborhoods” previously “marked 'hazardous'” by the federal government 80 years ago, “are still lower-income” (Jesse). Kate Crosby, head of Dayton, Ohio’s human relations council, states that throughout communities who had suffered from Redlining “small business development is not occurring,” and consequently, “economic development is not occurring” (Wallace). A study done in 2016 by the Federal Reserve Bank found “the three biggest bank mortgage lenders” across America, those that “account for more than one-third of all deposits,” made “only 15 percent of their lending to low- and moderate-income borrowers” by the end of 2016 (Jesse). This study outlines how businesses do not invest in lower-income communities unless required, and if companies do, it is a very little amount. 

Without business investment, communities are isolated from the resources necessary to achieve their potential and increase their capital (“Understanding Neighborhood Effects of Concentrated Poverty”). This isolation fuels the cycle of poverty, especially because it deprives the children of the community of substantial education. Without sufficient community investment, public school systems suffer. A study done by the Pew Trust Research Center found “70 percent of poor Philadelphians said their children attended district-run schools” over a “charter school or private school,” but for the well-off, only 46 percent attended a public school (Swall). Lower-class families are not only denied more avenues for better education but “according to the district,” out of all the poor children in their public schools “only 2 percent” finished “elementary or middle schools with high achievement ratings” (Swall). Disinterest in lower-income neighborhoods from investors as well as the federal government affects neighborhoods of concentrated poverty on all levels. 

One of the most effective ways to end modern-day Redlining and increase investment in lower-income communities is to encourage development through federal and community investment. The Harlem Children’s Zone (HCZ) is a charity based in Harlem that began developing the community and its members through a pipeline basis. The “program begins at birth” and aids the child “every step of the way until college graduation” with exceptional programs centered around “education, social services, and family support” (“Harlem Children’s Zone”). In 2003, the HCZ created “the Practitioners Institute to share information about” their programs, and their pipeline foundation was proven to be so successful that in 2008, President Obama modeled the federally funded Promise Neighborhood Program after it (“Harlem Children’s Zone”). The Promise Neighborhood “initiative offers $10 million in...grants” to charities across America with an aim to “design a pipeline of social, educational and health supports” (“Cleveland Promise Neighborhood”). The federal initiative proved to be effective and motivated the federal government to develop the program on a larger scale through Choice Neighborhoods. Choice neighborhoods provide assistance in navigating financial situations and other community challenges to low-income neighborhoods. Choice Neighborhoods are funded by “public and private dollars” that go towards “addressing struggling neighborhoods with distressed” housing situations “through a comprehensive approach to neighborhood transformation” (“Choice Neighborhoods”). 

Both the Promise and Choice Neighborhood programs have provided a substantial amount of aid to communities across America. In 2017, “97 percent of all children a part” of the HCZ program “were accepted into college,” creating a better reputation for the future generations of Harlem (“Harlem Children’s Zone”). Likewise, the Choice Neighborhoods, focused on community investment, made an immense impact on the redevelopment of the Pearl Meats Factory. The building was “a long, vacant” deserted meat factory “in one of Boston’s poorest neighborhoods,” but the Choice Neighborhood program helped to transform the building into a “multi-tenant food manufacturing center” (“Bornstein and Pearl”). Both of these success stories illustrate how increased aid to the community both socially and financially can be influential steps towards breaking the cycle of poverty and ending modern-day Redlining.

 While there are many success stories of these programs, most of the Promise and Choice neighborhoods are only in urban areas. Both programs require a base charity to fund and most lower-income, rural areas do not have these. To get this aid in rural communities, it would require extra funding from the government it is not likely to give. With this in mind, one looks towards investors, but most investors are not likely to donate funds unless they have a social or economic connection. Therefore, the federal government has an obligation to spread the Promise and Choice programs into all areas in order to decrease poverty rates. 

An influential method of breaking modern day Redlining is through individual business’ investment in their communities. Based in Carrollton, Georgia, Southwire, a wire and cable making company, “tackled a shortage of high school graduate” workers by hiring “a new factory entirely with students at risk of dropping out,” who were required “to stay in school to keep their jobs” (Porter). As a result, the Southwire initiative increased “the county's high school graduation rate” by a total of “10 percentage points” as “the factory was adding $1.7 million to earnings” in five years (Porter). Companies dedicated to providing economic opportunities to areas of concentrated poverty are pioneers in breaking the cycle of poverty. Moreover, the Southwire study also illustrates that investment in one’s community can provide an increase in production and therefore profit for businesses. Initiatives and investments in communities of need offer the opportunity for lower-income families to increase their capital while also allowing for more income opportunities as a business.

 The companies and initiatives mentioned are extremely important steps towards an end to redlining, but many larger and more renowned businesses are not going to want to invest in communities with a reputation of high-risk investments. For this reason, a market-based CRA is the best solution to ending the system of disinvestment modern-day Redlining creates. As of now, the CRA is “focused primarily on banks’” efforts towards “advertising and soliciting mortgage applications” in neighborhoods of low income or color, “not on the number of loan applications received or granted” (Neuberger). A market-based CRA would require financial institutions to maintain a quota of lower-income investment rather than simply encouraging it. “Banks are willing to be judged on results rather than efforts” in order to fully meet the credit needs in areas of concentrated poverty (Neuberger). A market-based CRA would give businesses the push and guidelines it needs to increase their investments in these neighborhoods. 

While the market-based CRA is predicted to be an effective solution, it infringes on the economy’s ideas of a free market. The new policy would require “some form of credit allocation,” which increases regulation on companies’ business (Neuberger). However, companies view “the certainty of meeting a measurable standard” preferable over the current CRA’s “vague evaluations of effort” in their investments by the federal government (Neuberger). Overall, if effectively implemented, a market-based CRA has the potential to end modern-day Redlining and lessen America’s cycle of poverty. 



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