The American Dream relies on the myth that if you work hard, you’ll be successful and move up in society. You’ll be able to give your kids a better life.
Although it is true for some, especially those born into the middle class, it isn’t true for everyone.
The American dream myth ignores the poverty trap, which makes social mobility impossible for large swaths of the population.
What is a Poverty Trap?
A poverty trap is a mechanism that keeps individuals, families, and generations stuck in a cycle of poverty. The working poor can’t achieve the dream of upward mobility because it requires money they cannot access.
In this sense, the adage that it takes money to make money is true. The working poor don’t have access to the money it takes to claw their way out of poverty. They are trapped in a vicious cycle of generational poverty.
What Causes the Poverty Trap
The poverty trap has been studied extensively, mostly in underdeveloped countries. The causes of the trap generally include limited access to credit & capital markets, the destruction of agriculture, disease, lack of access to health care, war, and degrading infrastructure.
People get trapped in poverty because they don’t have access to savings accounts, investments, or credit. They can’t borrow if they get in a bind, and they have no way to beat inflation on any money they do have.
Due to the destruction of agriculture, they can’t afford to buy food. If they get sick, they can’t stay home and get better or see a doctor. Their homes and communities start falling apart, and they can’t afford to fix them.
These six factors work together to keep people poor.
The Poverty Trap in the United States
The poverty trap is not only experienced in underdeveloped countries on the other side of the planet.
The poverty trap affects millions of Americans. Structural mechanisms in the United States make it impossible for the working poor to dig themselves out of poverty and provide better lives for their families.
Here is how our policies correspond to the studied causes of the poverty trap.
Limited Access to Credit and Capital Markets
You can almost find a bank on every corner. If you’re comfortable in your middle-class bubble, you might not realize that millions of people cannot access bank accounts.
Opening an account is challenging for people in poor neighborhoods. Instead of banks on every corner, you’ll find insidious “check cashing” stores.
People who live in these underserved areas must travel outside their neighborhoods to find a bank, and because most don’t have cars, that means a potentially hour-long bus trip.
Even if people in poorer communities have access to a bank, many can’t afford to maintain the account.
Free Checking isn’t Free for the Poor
Most banks offer free checking for customers who meet specific requirements. Generally, you need to have money directly deposited each month, maintain a certain balance, or make a defined number of transactions.
Middle-class people can easily access free checking virtually anywhere because many companies offer direct deposit, and because they get paid a living wage, they can maintain the minimum required balance for free checking.
Society’s poorest members can’t meet those requirements. Many earn income via side gigs or freelancing and don’t know when the next paycheck will come. Others work for small businesses that don’t offer direct deposits. Some can’t afford to make five debit card transactions a month.
These people must pay for their checking accounts– upwards of ten dollars a month!
Those who can least afford to lose that money are the ones that get charged for it. Why would they even try to have a bank account if they lose money each month? And when they have a low balance, they still get charged the monthly fee, and then they get charged an overdraft fee on top of that, leaving them in debt to the bank.
If they can’t pay, it goes on their credit report, and they get blacklisted from getting a new checking account for nearly seven years.
Our capitalistic structures limit access to credit and capital markets in the US.
Destruction of Agriculture
America’s relationship with agriculture provides a unique view of poverty traps. It’s not technically being destroyed, especially not in the way we think.
In developing nations, agriculture is at risk due to floods, droughts, crop disease, and pests, which all cause poor harvests and lead to starvation.
Agriculture in the United States is still thriving. It’s one of our top exports and plays a huge factor in our economy. We have tons of fertile land throughout the heartland and are one of the world’s leading livestock producers.
Despite that, it’s still causing poverty.
In the US, the people are losing control of agriculture, even though it’s not being destroyed in the technical sense.
Giant corporations destroy small family farms. Two multinational companies own most of the seeds and sue small farms if there’s any hint of cross-contamination. Small farmers are going bankrupt while corporations are buying up their lands.
Although agriculture isn’t being destroyed in the US, the result is the same. Millions of people live in food deserts without access to healthy food, while giant corporations control the food supply.
It mays as well be destroyed if people can’t afford to eat.
Disease & Lack of Access to Health Care
There is no question that health care is an enormous problem in the United States. Most low-income workers do not get healthcare from their employers. They don’t get time off for sick leave, either.
Their choices are to go to work sick or stay home and not get paid (and even risk getting fired). They can’t see a doctor because it’s prohibitively expensive, so they stay sick or even die of curable diseases.
Millions of Americans lack access to affordable healthcare, and millions more are an illness away from poverty. Although most Americans have insurance, most still can’t afford their healthcare.
It’s even worse for women. In 2022, the Supreme Court reversed a decades-long precedent allowing women privacy in health care. As a result, millions of women had their right to bodily autonomy stripped away.
It’s now illegal for them to access life-saving care. It’s illegal for them to control their reproductive destiny. Though the full impact hasn’t yet been felt, we know from history that lack of access to abortion increases poverty.
The poverty trap will get worse for millions of women.
War
The United States has been at war for over 15 years. A recent study showed that the US has been at war in some form for all but 20 years of its 240 years of existence.
Luckily for us (not so much for the other countries), most wars in our current eras are fought overseas. That means they aren’t affecting our infrastructure or hurting our civilians. Therefore, war is one of the few things on this list that doesn’t directly contribute to the poverty trap in the United States.
There might be indirect links between funding for war vs. funding our communities or sending soldiers from poverty-stricken communities off to fight, but I haven’t seen any direct correlations.
Degrading Infrastructure
The United States’ infrastructure is degrading. A recent study showed nearly fifty thousand structurally deficient bridges in the United States. Schools in low-income communities have historically lacked proper funding to educate students, and roads are in such bad shape that private companies have stepped in and used filling potholes as a new form of marketing.
It’s so bad that the American Society of Civil Engineers gave American infrastructure a C- on its yearly report card. That organization estimates we’d need to spend a whopping 4.5 trillion dollars to fix the problems with our roads, dams, schools, airports, and more.
Digging Out of Poverty
Some people can indeed escape the poverty trap. The media loves pointing to these exceptions and proudly proclaiming there’s no problem.
If this one person out of millions could do it, you can too!
Celebrating the exceptional serves the system. It makes people feel like poverty is their fault and not a result of a mechanism that systematically keeps them trapped.
It’s like that episode of Black Mirror—Fifteen Million Merits. The system allows one or two people to escape (only to be trapped in a different system), giving millions of others false hope that they can do it, too.
In reality, digging out is much harder than it sounds.
People get gouged at every turn. Whenever they try to claw themselves out, something else puts a boot on their necks and keeps them down.
The Poverty Trap is Real, but Fixable
The most important thing people can do to help those caught up in the poverty trap is to acknowledge its existence. Far too many people claim it’s the fault of low-income people. If they just made better decisions, they, too, could escape poverty.
Empathizing with them and realizing it isn’t easy is an essential first step. Educating our friends in our middle-class bubbles helps spread the word.
Next, we should vote for policies that will actually help these people. We should examine the causes of America’s poverty trap and vote for the people who address them.
We can change things and end the poverty trap in the United States. It won’t be easy and may cost the middle class a little more money. But in the end, a rising tide lifts all the boats, and we should be happy to fix an unjust system and allow everyone equal opportunity.
Honestly I believe the reality is somewhere between you and the boot strap folks. I grew up lower middle class and am no longer such. Our country financial setup does make it difficult to change.
But as someone who grew up lower middle class there’s another part of poverty you ignore. Culture.
Using my own example my wider families culture was configured in such a way to keep me from climbing out. Education was not valued and something to be avoided so you didn’t become unrelatable. Saving for a rainy day was not something you did. You spent before the rainy day took it away. You have to break that culture and ease the transition. It’s not either or.
Note your small farm section is a bit of a red herring. Small farms have largely been dead in the US for most of anyone under 40s lifetime. The percent of ppl in poverty in the US who’ve ever set foot on a farm is probably statistically insignificant.
I think part of the reasons why that type of culture develops is because it’s the reality for most people. Why save money when it’s just going to be gone in the next emergency and I won’t get ahead anyway? Why not reward myself now with a new TV? People who live hand to mouth do tend to have that mindset.
I also don’t think my section on farming was a red herring at all. I agree that most people haven’t set foot on a farm, but that’s kind of the point. They can’t grow their own food, and they can’t afford to buy healthy options because they live in food deserts. I completely acknowledged that the agricultural industry in the US isn’t exactly suffering. It was just my opinion that the inability of America’s poor to access healthy food contributed to the poverty gap in the US, extrapolated from the fact that family farms aren’t a thing anymore. I’d love to really be able to study it though.
Thanks for the well thought out comment and discussion!
I really enjoyed this article and it’s a topic that interests me deeply. Being U.K. based I find some of the things in the US strange (lack of free healthcare). I visited California last year and the gulf between rich and poor was unbelievable. Even for me, a relatively well off person from London, I found things so expensive compared to Europe.
Also the US banking system seemed outdated and clunky compared with the European system. No contactless payments, and having to sign to pay! I don’t think I’ve used a cheque for about 10 years. I guess this article explains why as it makes them so much money.
Thanks for your input. I think it’s fascinating to see the ways the US differs from other countries on these issues. It seems like we can’t break away from the idea of “individual responsibility” enough to help anyone else, and that’s really sad to me. I want to be European so badly.