Are Iowans better off than most Americans?
The Atlantic magazine recently featured a cover story, “The Secret Shame of the Middle Class.” The story detailed the shocking result of a Federal Reserve Board survey, “Report on the Economic Well-Being of U.S. Households in 2014.” The survey revealed that if confronted with an unexpected expense of $400, “47 percent of respondents said that either they would cover the expense by borrowing or selling something, or they would not be able to come up with the $400 at all.” Even among American households earning in excess of $100,000, twenty-seven percent of such respondents admitted they would have difficulty paying such an expense. A $400 emergency expense is not a large expense; most significant car repairs or even minor medical conditions will quickly soar past $400.
Aside from issues of money management, the survey highlights a rarely-discussed facet of income and wealth distributions in America: the network of friends and family. One of my UNI students was casually describing his family situation. He was successfully completing his Certified Public Accountant (CPA) exams; his fiancé was doing the same. His parents and other relatives were similarly prosperous. In addition, he knew twenty or thirty other aspiring CPAs. This young man was a prudent person, but in case of unforeseen financial setbacks, he was well placed to receive help from friends and family. Not only will his future spouse and he immediately earn well above the median household income, they have a strong web of potential rescuers.
Contrast my young friend’s situation with a high school graduate (of similar age) in an impoverished rural community. Perhaps a young man of the same age earns $22,000 and his spouse gets $12,000 from a part-time job. They are below the median household income but not in poverty, even if they have two small children. Maintaining an American standard of living probably leaves them with modest savings, especially given their youth. Perhaps no one in their extended families has ever graduated from a four-year college. Most of their family members earn well below the median household income. A $400 repair bill looms large; they may have to scrimp on food or heating bills. If the couple’s friends and families are in similar straits, the couple may have difficulty borrowing money to cover the expense. Even worse, if their car breaks down, one of them might lose their job while getting the car repaired or arranging rides to work. They may have recourse to a payday loan business, where the effective interest rates snowball quickly.
Semi-skilled and unskilled American households, then, may be in greater financial jeopardy than what the standard income and wealth distribution figures reveal.
For Iowans, at least, there are two mitigating factors, though. A recent study by the Equality of Opportunity organization suggested that Iowans have a greater chance of upward mobility in the sense of moving from the bottom quintile (20%) of household income to the top quintile than do Americans in most states. Iowa also has one of the lower Gini coefficients among the states. The Gini coefficient is a measure of income distribution; a lower Gini coefficient indicates that incomes are more evenly distributed than under a higher Gini coefficient. Many of the states displaying greater upward mobility and more even distributions of income tend to be sparsely populated.
Given Iowa’s longstanding support of public schools, the above effects are understandable. Even children of economically deprived families have access to reasonably good schools in this state; the odds against their success may be tilted against them, but they still have reason to hope for economic advancement past their parents’ attainment. This factor may well contribute to Iowa being a good place to live. We don’t have the entrenched poor and rich that other states have. Whether Iowans were more able than most Americans to meet a $400 repair bill was not mentioned in the article, but the factors of low Gini coefficient and significant upward mobility suggest that Iowans would be better able to do so.
The views and opinions expressed are those of the author and do not imply endorsement by the University of Northern Iowa.