Watching Your Wallet in a Volatile Economy

American incomes are more volatile now than they were 30 years ago. Dr. Julianne Malveaux — author, economist, and president of Bennett College — explains why.

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TONY COX, host:

But first, we've got one more headline, and it takes us to that thrill ride in your wallet and in your pocketbook. The Wall Street Journal reports that families are more likely, now than they were three decades ago, to have their household incomes drop suddenly. According to a recent study, income volatility has risen 23 percent since the early 1970s. That's some rollercoaster we're on, but the three economists behind the study, two of them from the Federal Reserve, warned that this doesn't necessarily mean that folks are feeling the pinch. After all, that is what credit is for, I guess. For more, we turn now to Julianne Malveaux, author, economist and president of Bennett College. Julianne, nice to have you on as usual.

Dr. JULIANNE MALVEAUX (Author; Economist; President, Bennett College): Good to be with you, Tony. Always a pleasure.

COX: Let's start with this, Julianne. This study sounds a little complicated. So families' incomes are more volatile but they aren't feeling it. How does that work?

Dr. MALVEAUX: Well, two things we need to know. In the 1970s, they're going 30 years, people have the expectation of having a career for 30 or 40 years. You went to work somewhere, you stayed there, you left, you got a gold watch. Your salary went up every year. You know, layoffs were unusual. That profile has substantially changed. But secondly, as you said, there's credit. So the significant number of Caucasian families who own homes - 75 percent of white families own homes - make these fluctuations work by using home equity. So if you have a two-earner couple, which is the typical profile of an American family, husband working, wife working, husband making a little more than wife, but not always. Now, it's about a third of the wives who make more than husbands. But when somebody's laid off that's a shock. And how do you deal with that shock? You borrow.

COX: But what if they are in an apartment? What if you are in an apartment where there is no equity? How do you balance the volatility there?

Dr. MALVEAUX: So you're - then you have a problem. You have a problem. If you're African-American, you're more likely to be a renter. You have a problem. Lots of folks are not able to cushion it. In fact, if you look at the most recent data, Tony, it's frightening data. About 70 percent of all Americans saw their incomes drop in the past five years.

And people figured out different ways to manage it. Some of them borrowed through home equities, some through credit. Big story, big difference. If you borrow through home equity, maybe you've got a six or seven or maybe even eight percent interest rate. If you borrowed from a credit card, it's 19, 20, 21 percent. So you're disadvantage because you don't own a home and the entire history of housing discrimination then comes to visit on you.

But here's the bottom line, we don't have the income certainty that we once had. For many people if you're at the top quarter of the income distribution, it's not the end of the world. You made 100,000 last year and, you know, then you made 200 then you made 75. Well, you can average that out. But if you're at the bottom end of the income distribution, you made 50 then you made 25 then you made 10 that's a whole different story.

COX: You know, that's exactly…

Dr. MALVEAUX: You're talking about some months when you are unable to pay your bill.

COX: That's exactly what I was going to ask you about. Because we all know, most of us, I'm sure, know about the drop, the feeling of the drop, but we don't always - we're not always able to rebound from that drop. Certainly, for people who are older, who are being phase out of their jobs, who are going back into the job market looking for something comparable to what they were making and finding that there is nothing available there for them.

Dr. MALVEAUX: You know, for every $10,000 in income you make, theoretically, it takes you about a month to find a replacement job. So if you were making $100,000, it's got to be 10 months to find a job - $50,000, five months. Well, again, the issue is what your cushion looks like. And if you're - you are one of these high-flying, low-net worth individual, in other words, big salary, low asset, you're in trouble.

It's a lot harder to pull out of a hole like that than one where you have the assets. And so when you look again, especially at the African-American community where we focus all too often on NEWS & NOTES because we must, you look at our community what we see is that it's a different situation. The bounce back is much more difficult. You're getting into a deeper hole. You started out all too often if you're African-American and first generation college, you're starting out in a hole of college debt. Okay?

And then, you have this income volatility that increases it. So you see increased bankruptcies and other kinds of challenges and issues, different credit scores, which means different cost of money. It's a spiral that has a possibility of spinning out of control for those at the bottom.

COX: Let's talk about another challenge that isn't always associated with the cost of running a household, something that may put more financial strain, Julianne, on the families is, in a word, violence - especially what I will call the hidden cost like higher insurance, personal and property security expenses, altered lifestyle. A violence is even in our entertainment which we'll be discussing in more detail in our next segment in the program on hip-hop culture. But for now, what are some of the biggest ways that consumers pay because of the violence around us?

Dr. MALVEAUX: Well, the one of the things you pointed out, Tony, was insurance. Whether it's car insurance, a homeowner insurance, any of those things when you live in high-crime areas, you're paying more money. Clearly, what are we looking about? We're looking at innercity areas - you know, high African-American, Latino population. We're looking at places where you see a lot of break-in, but people end up paying. There's a direct pay in terms of insurance but there's the indirect pay. You know, I've lived in downtown Washington until just a few weeks ago on a street, which was relatively safe, but - not a week past, where you didn't see someone's car broken into.

What's your deductible? The higher your deductible, the lower your car insurance rate but that means that something is coming out of pocket, you know, to pay $300, 400, 500 to pay for that broken window. There are other places, we have other kinds of things and you know what the insurance - we learned this with Katrina in its aftermath - you never are made whole. So you get something but you're never made whole.

COX: That's true. Well, you know something else…

Dr. MALVEAUX: These are all things you just - people have to put into their budgets.

COX: You know, something that I notice in terms of going places - the bank, the grocery store - you can't go anywhere without finding a security guard standing there these days. Isn't that an added expense, the cost of it, having security like that at the places that we used to just be able to go in and out of freely?

Dr. MALVEAUX: You know, you make a really great point on two perspectives. One, that security guards, hourly, is showing up in the two or three cents extra you're paying per gallon for milk. But here's the other thing, you go to these so-called high-crime, high-violence areas, how many banks are you really going to find and how many grocery stores?

So the people who more likely need the bargains, I mean, you have Costcos in the suburbs. Who in the suburbs needs 12 rolls of toilet paper at one time? They need that in the hood, you know? I mean come on now. So, you have people, you know, special dislocation at some level around some of these issues and basically people don't locate in areas where they think there's high violence, and so you end up with, you know, much smaller array of services in those areas. And when those services are there, they cost a little bit more.

The violence issue, I'm so glad you all are focusing on this, although I did hear you say that culture of hip-hop, is that an oxymoron? The culture of hip-hop - anyway…

COX: So now you're starting - are you trying to start something?

Dr. MALVEAUX: I'm trying to start something, what can I say?

COX: But, you know what, let me - as we bring this part of the conversation to a close, I want to mention something in connection with your new employment as the president of Bennett College. Talk about the cost of violence on a family from this perspective. As a new college president, what expenses does your campus at Bennett or what expenses do the parents of your students at Bennett have to shoulder as a direct result of the culture of violence?

Dr. MALVEAUX: You know, that's a really good question. I'm glad you asked because it's something we've been thinking about. In the wake of the Virginia Tech situation, I think everyone of our nation's 3,000 campuses is looking at what we do about safety. What we have to do about communicating with people around safety? What we have to do with making sure we have the appropriate security guards and other people on campus? And all of these, Tony, are cost. I'm - I tell people all the time I was you last week. Last week I had all these great ideas, now every idea that I have has to filter through the whole motion of cost. And we have to - security is ground zero.

When people tell me that their daughters are coming to Bennett, I realized that I have to be responsible for their safety and it means that wherever other corners I cut, I can't cut corners around that. We do live - Bennett College for Women is in the hood. We don't have a lot of violence on campus, but the possibility is always there, and students always struggle around it. The federal government…

COX: Let me just interrupt you - let me interrupt you to say we got about 30 seconds or so - so go on, finish your answer.

Dr. MALVEAUX: But the federal government does produce statistics around campuses and where violence is. We're not one of the most, you know, crime-prone campuses, but I think that everyone who sends their child to school prays that it will be a safe experience.

COX: Thank you. You know, I think we should come back and revisit this. There's a lot more to talk about and, unfortunately, we just didn't have the time to get through it all.

Dr. MALVEAUX: You never give me enough time.

COX: I know, I know, but we're going to have you back, of course. Julianne Malveaux is an author, economist and president of Bennett College, speaking with us from the studios of WFDD in Greensboro, North Carolina.

Julianne, nice to have you. I'll see you soon.

Dr. MALVEAUX: Always a pleasure. Thank you, my brother.

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