How to Bet Big on the American Dream
Give $1 billion to initiatives that spark upward mobility for people trapped at the bottom—then get a 300 percent return on investment.
For his first 20 years, Greg Walton’s life proved that the Horatio Alger story didn’t have to be fiction. Walton was born to a mother who struggled with drugs. He spent some of his earliest years shuttling through North Carolina’s foster-care system. At age 6, he went to Boston to live with his great grandmother and, later, a great aunt in a gritty section of Dorchester. In a house filled with a dozen children and adults, he was often left to fend for himself.
Nevertheless, Walton got himself into the well-regarded Brighton High School. He kept his grades up, starred on the baseball team, and launched a business selling custom-mixed CDs. When he was admitted to Salem State University, he became the first member of his family to enroll in college. But in his freshman year, Walton stumbled—hard. He failed tests in all of his courses but one. He skipped classes, drifted from campus life, crashed on friends’ sofas, and quickly ran out of money. A few months earlier, he had been on his way to building a middle-class life. By age 18, he was spiraling toward a life on the street—a life he had assiduously tried to avoid.
What happened? Unprepared for the fleet of new experiences coming his way, Walton was quickly overwhelmed: He lacked the shock absorbers available to children of wealthier families—a network of parents, extended family members, and mentors—who could help him bounce back. “I was lost,” he recalls. “I didn’t understand how to grow into getting a career.”
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For millions of low-income Greg Waltons, America’s promise—that every citizen has an equal opportunity to build a career and a better life—is an impossible dream. As reports such as Pew’s Pursuing the American Dream have documented, for many Americans, their place in the economy is practically predetermined at birth. Nearly 70 percent of children born to parents in the bottom 40 percent of incomes remain in the economy’s basement—regardless of whether they “work hard and play by the rules,” as so many have been taught. And for historically marginalized people of color, the story is bleaker. Even for hardworking black families who have managed to climb to the middle rung, it’s still more likely than not that their children will slide back down the ladder. The data reveal that nearly seven out of 10 African Americans born at the middle-income quintile will fall into one of the bottom two quintiles as adults.
Public outcry over America’s economic sclerosis spans the ideological spectrum: While Donald Trump proclaims, “The fact is, the American Dream is dead,” Bernie Sanders declares, “For many, the American Dream has become a nightmare.” Despite such dystopian pronouncements, the notion that this essential principle of American life is in its death throes is wrongheaded. Across the United States, organizations have figured out how to create more economic opportunity, and unique programs and policies are reviving the meritocratic ideal. Putting many more low-income Americans on an upward trajectory is well within the nation’s grasp.
So can private donors make smart, actionable big bets that will take the nation there faster—within years, not decades? According to return-on-investment calculations (informed by Urban Institute data) from the Bridgespan Group, a nonprofit philanthropic advisory firm, large amounts of capital, invested in targeted, on-the-ground innovations that are already producing results (but at too small a scale), can pave the way to social mobility for millions of poor Americans. The challenge is to better connect major funders, as well as public resources, with ongoing interventions that have a lot of potential.
Betting big on the American Dream has been tried before: Since the mid-1960s, public and private institutions have invested billions of dollars to create economic opportunity for every American. Remember the War on Poverty and No Child Left Behind? And yet, the data show the United States is far from achieving equal economic opportunity for all. Recently, a team at the Bridgespan Group examined ways of investing in the American Dream again. Recognizing the merely incremental effects of past efforts, they still wondered: Could placing the right bets at the right size move the needle on poverty? Bridgespan then set out to identify opportunities where $1 billion of targeted private funding would have the best chance of making a measurable difference.
They began with a deep dive into the vast body of research on what it would take to create equal economic opportunity for low-income Americans. Working closely with an advisory board of national leaders, and after conducting scores of interviews with experts from various fields, Bridgespan then identified 15 investments, or bets, where $1 billion of philanthropic capital could rekindle upward mobility for large numbers of people currently trapped at the bottom of the income ladder. The calculations show that the best investments are in programs and tools that help low-income individuals (1) build skills that will propel them to the middle class, (2) remove obstacles that hold them back, and (3) provide opportunities to transform high-poverty communities. But what is surprising is that, in addition to creating a high probability of increasing people’s lifetime earnings, these programs and tools potentially yield aggregate returns of at least $3, and as much as $15, for every $1 invested. A worthy return on investment.
Is the American Dream even realistic anymore? It’s possible, and Bridgespan believes it is. Here’s why: Thanks to the Social Genome Project, researchers now have a much clearer idea of what it takes to put a low-income child on an upward life trajectory. With data drawn from the National Longitudinal Survey of Youth, the project traces the life journeys of children from 1986 through 2010 and uses a statistical model to predict where they’ll land on the income ladder by age 40.
The model makes a powerful case that kids must hit a majority of make-or-break milestones as they grow, including: acceptable pre-reading and math skills and “school appropriate” behavior in early childhood; basic reading, math, and social skills by middle childhood; a high-school diploma with at least a 2.5 grade-point average by late adolescence; and a college degree or a family income of $45,000 by the end of their 20s. Great swaths of low-income children fall behind at each of these milestones. Just 17 percent of less-advantaged kids meet every benchmark (compared with 37 percent of their more-advantaged peers). But for those who do, their chances of becoming “middle class by middle age” (a family income of at least $68,000 by age 40) are almost as high as their better-off peers. This means there’s a yawning opportunity for philanthropists to have a transformative impact. Consider, for example, the second chapter of Greg Walton’s life.
During Walton’s final months in college, he joined a prolific neighborhood business: dealing marijuana. On a hot August night in 2004, Walton was arrested for carrying an unregistered handgun. With a criminal conviction on his record, Walton faced overwhelming odds: 60 percent of former inmates remain unemployed a year after they are released. After Walton got out of jail, the only job he could land was at a Stop & Shop, stocking shelves and shagging shopping carts for $6.75 an hour. But then, he got a second chance.
In 2006, Walton entered an apprenticeship program offered by the nonprofit Year Up, which gives low-income young adults six months of intensive technical and professional training, followed by six months of interning at global companies such as State Street, Salesforce.com, and Novartis. Walton took the information-technology track, interned at a venture-capital startup in Boston, and was voted class leader. Yet after graduation, his criminal record locked him into dead-end contract jobs for $10 an hour. With excellent recommendations, he caught a break and landed a temp job staffing a reception desk at MIT. Over the past eight years, he has worked his way up to a full-time position as an engineer in an I.T.-services group that supports three departments at the university. Along the way, he became a husband, a father of two, and a homeowner. “It’s a miracle,” Walton says. “In the neighborhood that I grew up in, you never see anyone with a clear direction or a real career. You grow up thinking that kind of life is unobtainable.”
Walton’s story has a happy ending, but there are currently 6.7 million 16- to 24-year-olds who aren’t in school and aren’t working. Many are like Walton—talented and motivated. This breathtaking loss of human capital has enormous consequences. A report commissioned by the White House Council for Community Solutions estimates that each “disconnected youth,” a cohort disproportionately black and male, costs the economy nearly $40,000 a year (in 2011 dollars) in social supports, most of it going to health care and, especially, the criminal-justice system. Over the next few decades, disconnected youth’s total cost to society will reach a staggering $4.7 trillion. At the same time, labor experts estimate that during this decade alone, the economy will generate 25 million openings for “middle-skills” jobs in computer technology, nursing, and other fields that require more technical education than high school but less than a four-year college degree.
A savvy and likely successful philanthropic investment would target programs like Year Up, which help low-income young people acquire technical and professional skills for careers. They also help employers imagine a new age of hiring, by looking past the candidate’s pedigree and instead focusing on competencies. A study of unemployed young adults in New Mexico, for example, found just 1 percent of that population qualified for jobs that required a college degree, but 33 percent qualified for those same jobs when they were assessed for work skills. To be sure, a college degree is valuable. But there are equally viable paths to quality careers.
Bridgespan estimates that a $1 billion investment in building pathways to careers will generate $7.3 to $14.7 billion in increased lifetime earnings. The bet comes with some big risks, as competency-based hiring is still far from the norm. But emerging models are producing results. Companies like IBM and Applied Software have launched alternative credentialing systems, dubbed “boot camps,” where aspiring developers and consultants acquire technical skills. To complement these new models, there is also potential in scaling the partnerships that higher-education institutions are forming with employers to ensure that students develop market-ready skills.
The idea behind competency-based learning—hiring based on the employee’s actual skills—is by no means new and has its share of critics. Some say alternative-learning institutions only lead to greater inequity, as low-income people who are directed to competency-based vocational tracks acquire a narrow set of skills and ultimately lose out to upper-income people who benefit from the kind of well-rounded education that’s highly valued in the knowledge economy. But there’s plenty of room for both approaches. In fact, the momentum for competency-based learning is accelerating, as are efforts to ensure that alternative credentialing programs are truly meaningful. The University of Texas has moved from a pilot project to a broader rollout of competency-based programs across its full system. There has also been a move from small, bespoke partnerships between institutions and business to partnerships that span entire regions, such as the National Academy Foundation’s NAFTrack career program, which thus far has secured 13 major corporate partners.
This $1 billion bet on competency acquisition would mark a shift from degrees based on seat time to credentials based on skills.
Innovative training programs like Year Up, which has produced 8,500 graduates and served 13,000 young adults, almost all of whom have dealt with adversities like homelessness, drug abuse, and teen pregnancy, are clearly succeeding. Within four months of graduating, 85 percent of Year Up’s alumni are enrolled full-time in college or have full-time jobs averaging $36,000 a year—major middle-class milestones for people in their late 20s. (The federal poverty line for an individual is $11,880.) “We know talent is distributed everywhere across the country,” says Gerald Chertavian, the founder and chief executive of Year Up. “And we know opportunity is not. We really have to address that disconnect if we’re going to have a democracy that lives up to our aspirations.”
Even when people do the things in early life that put them on an upward trajectory, they won’t necessarily make it to the middle class by midlife. Greg Walton did a lot of things right early on, and he still came very close to losing his shot at the middle class. There are a number of stumbling blocks that can pull people off the path, but one of the most disruptive is unintended pregnancy.
In 2014, nearly 1.5 million births were “unplanned”—that is, the mother was not actively trying to conceive. Many of those accidental parents drop out of high school and community college—dramatically decreasing their chances of ever making it to the middle class—at far higher rates than their peers. Staff workers at the New York City branch of Young Life, a nondenominational Christian ministry that mentors teenagers, have a close-up view of the social and economic consequences of unplanned births on teen moms: “Their own mothers are absent from their lives, so they’re trying to learn how to mother when they themselves are kids,” says Genevieve Smith, a Young Life staffer who works in Brooklyn’s Red Hook projects. “They’re living with enormous trauma, and they just can’t deal.”
Some reproductive-health experts have a proven, low-cost solution: intrauterine devices (IUDs) and birth-control implants, known as Long-Acting Reversible Contraceptives (LARCs). For six years, Colorado administered a privately funded program, the Colorado Family Planning Initiative, which offered young, low-income women access to LARCs at little or no cost and provided counseling. Between 2009 and 2014, Colorado saw a stunning 48 percent decline in both the birth rate and the abortion rate for women ages 15 to 19.
LARC methods last up to 10 years and have a less than 1 percent failure rate; and the American College of Obstetricians and Gynecologists has deemed them safe. However, just 30 percent of federally qualified public-health centers, which comprise much of the health-care safety net, administer long-acting contraceptives. That’s an opportunity for philanthropic capital to give low-income women and their partners a much better shot at the middle class. A $1 billion bet could take Colorado’s model national. The investment could also fund awareness campaigns targeting teenagers and could increase counseling services. Bridgespan estimates this bet could generate a $3.2 to $6.4 billion return in increased lifetime earnings for children born at a time when their parents are financially prepared to raise them.
Of course, any effort that supports greater access to contraceptives will likely encounter blistering political attacks. Despite the Colorado initiative’s success, last year state lawmakers killed a bill that would have invested $5 million in public money to keep the program going. (Private foundations stepped up and donated $2 million to continue the program; and this past April, state lawmakers agreed to allocate additional funding.) It’s likely this will continue to be a lightning-rod issue in many states. The backlash extends beyond traditional politics, too. Some African Americans and Hispanics are deeply suspicious of LARCs, which they equate with efforts to control their communities’ populations. “A new birth-control method for teenagers is not the answer,” says Samantha Seminario, a Young Life staffer based in Harlem. “Building relationships with caring adults is what makes the difference.”
That’s why attempts to spread the use of LARCs must also focus on promoting awareness as well as access. Promotional campaigns cannot be perceived as coercive. At the same time, the data are undeniable: Women are far more likely to make it to the next rung on the income ladder when they are able to decide when to become pregnant. This past January, Delaware Governor Jack Markell said as much when he announced a statewide initiative that’s similar to the Colorado effort. (Delaware has the highest rate of unintended pregnancies in the nation.) Working with the national nonprofit Upstream USA, Delaware has lined up $10 million in private funding to train providers to prescribe LARCs and other forms of birth control to women, even without insurance.
“The agenda [for LARCs] is relatively easy, and it saves money,” says Isabel Sawhill, a Brookings Institution economist. “The benefit-cost ratio is very high.”
Even as researchers trace the milestones people need to attain, and the obstacles they need to circumvent, in order to reach the middle class, they are also delineating the consequences of place.
Stanford’s Raj Chetty, Harvard’s Nathaniel Hendren, and Berkeley’s Patrick Kline and Emmanuel Saez have demonstrated how geographic place and economic mobility are inextricably linked. Consider Flint, Michigan.
The researchers’ landmark 2014 report shows where people in America are climbing the income ladder—and where they are not. A rusty blotch on the study’s map, matching the color of Flint’s lead-laced drinking water, radiates outward from Detroit, marking one of the country’s 10 worst regions for upward income mobility. There are also pockets of entrenched poverty that extend throughout the Southeast and other regions that successive recessions have shattered.
In cities across the country, years of poorly designed, sometimes intentionally discriminatory housing policies have created communities of concentrated, racially segregated poverty. These disadvantaged communities are pockmarked with dilapidated housing, where contaminants such as lead, PCBs, and flame retardants cause prenatal brain damage to tens of thousands of children every year. There are also substandard schools and the grinding threat of intrusive policing and chronic crime.
“It’s not just the gangs and violence that take a toll on people,” says Paul Coty, who directs Young Life’s teen programs in New York. “It’s the lethal absence of hope. We’ve got kids who’ve stopped coming out of their apartments in the summer, because they’re afraid they’ll be shot. That level of fear is just fatal for children.”
The number of people living in high-poverty neighborhoods (where more than 20 percent of the population lives below the federal poverty line) grew from nearly 54 million individuals in 2000 to nearly 77 million in 2010. More than 50 percent of all African Americans live in neighborhoods where poverty is concentrated. Even for those families who have climbed up to the middle class, discriminatory policies make it difficult to move to middle-class neighborhoods. According to research by the New York University sociologist Patrick Sharkey, a black family making more than $100,000 a year is more likely to live in a high-poverty neighborhood than a white family making less than $30,000. The data make a compelling case that a child born into these neighborhoods will likely spend the rest of her life in poverty.
These staggering figures suggest that there need to be opportunities for people living in blight to improve their communities and that there also need to be opportunities for them to move to better neighborhoods.
Efforts to move low-income families out of the projects and into middle-class neighborhoods date back to the 1970s, when a desegregation lawsuit forced the Chicago Housing Authority to provide housing-choice vouchers for low-income black residents. Many Chicago families who made the move went on to thrive. Parents had lower rates of obesity and depression, and kids who moved when they were 13 or younger went on to earn incomes that were nearly one-third higher than their peers who remained behind. Unfortunately, few other cities followed Chicago’s example (until a series of public-housing desegregation suits were settled by the Department of Housing and Urban Development during the Clinton administration). One city that did was Baltimore.
When Chetty and Hendren investigated the effect of high-poverty neighborhoods on social mobility, they found that a child who grows up in a low-income family in Baltimore (that is, the county equivalent) earns significantly less than any of the 100 largest counties in the country. Yet Baltimore also has one of the nation’s more promising programs for moving people up and out of poverty.
Since 2003, the Baltimore Housing Mobility Project has moved more than 3,200 African American families out of the city’s high-poverty, highly segregated projects and into low-poverty, racially mixed neighborhoods. The program scouts out true “high-opportunity” communities with low poverty and crime rates, high-quality schools, racial and economic diversity, employment centers, and access to mass transit—attributes that help ensure families don’t simply move to neighborhoods that are just a little less poor. Families who are “moving to opportunity” benefit from workshops on negotiating leases, financial planning, locating quality schools, and finding jobs.
Michelle Green, the mother of four sons, believes she saved her kids’ lives when her family left Baltimore public housing. In her old neighborhood, her teenage nephew was shot during a robbery. With a housing-choice voucher in hand, her family moved to a diverse neighborhood in Columbia, Maryland. Today, her two oldest sons have graduated from high school and her younger sons are planning for college. “They have made it past the most difficult age and are productive members of society,” she said. “And they are safe.”
Based on Chetty and Hendren’s analysis of the moving-to-opportunity experiment, Bridgespan estimates that a $1 billion investment in building access to better housing opportunities across entire regions will result in $4.5 to $8.5 billion in increased lifetime earnings for low-income children who make the move.
That said, the research on moving to opportunity is still nascent. An earlier HUD study found that families who moved to better neighborhoods were happier and healthier, but most still failed to move up the income ladder. And every move-to-opportunity effort must still find a way around looming obstacles: like when more affluent communities don’t exactly roll out the welcome mat for low-income black and Hispanic families.
That’s why it’s still critical to help the millions of families locked into high-poverty neighborhoods where they are. Any moving-to-opportunity program must work in tandem with strategies that support people who want to transform the communities they already live in. That requires working with community leaders to identify urgent problems that need fixing, such as the crime and health impacts of living in blighted housing. It also means creating mixed-income housing, birth-to-employment education initiatives, community-based policing practices, and ride-share programs that let people commute to better-paying jobs.
As experts such as Elizabeth Julian of the Inclusive Communities Project and Margery Turner of the Urban Institute have made clear, “either/or” thinking no longer suffices. The nation needs “both/and” solutions: invest in both transforming neighborhoods of concentrated poverty and in giving low-income people the choice of moving to neighborhoods where they are far more likely to earn their way to the middle class.
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For some time now, economists and social scientists have had an instinct about how to help many low-income people negotiate the milestones and overcome the obstacles to the middle class. Now they have the data. And the data make it clearer than ever that a holistic approach—one that combines innovative, blended interventions from early childhood to adulthood—holds the most promise.
Sure, a single investment can make a big difference. Helping a young woman avoid an unintended pregnancy has an economic impact on her child of $52,000 (in today’s dollars), which is precious hope for someone who is scrambling to stay above the federal poverty line. But if the mother continues to live in a high-poverty neighborhood or fails to acquire the skills to build a sustainable career, she’ll likely remain stuck at the bottom of the income ladder. One-off interventions help, but only incrementally. To make a meaningful difference, changes must happen at several levels.
Consider the Harlem Children’s Zone, which takes a comprehensive approach to supporting every child, “from cradle to college,” within a 90-block zone of Harlem. HCZ has an impressive track record. Its Baby College helps expectant parents and parents of very young children build a solid foundation for their kids’ development. Students at its Promise Academies consistently outperform their public-school peers in reading and math. In fact, 93 percent of its high school graduates are accepted into college. These are all critical benchmarks for making it to the middle class.
HCZ’s model is spreading. Nonprofit organizations such as StriveTogether and federal programs such as Promise Neighborhoods have coordinated across school systems, nonprofits, and government to create cradle-to-career services for youth living in distressed neighborhoods. And there’s Turnaround for Children, which supports children’s behavioral and emotional development as well as their cognitive skills. Philanthropists are also beginning to work together, by pooling their assets. They are making bigger bets across a range of opportunities to increase the probability of more low-income people hitting multiple middle-class milestones.
Blue Meridian Partners, for example, draws private donors together to invest at least $1 billion in high-performing organizations that aim to open opportunities for economically disadvantaged children and teenagers. Realizing that the challenge is far too large to go it alone, Blue Meridian’s six founding partners—including former hedge-fund manager Stanley Druckenmiller—share decision making over where and how to invest with the people working on the ground. (It’s not hard to imagine Blue Meridian’s funding model also working at the local level.)
Bets of $1 billion can change trajectories, whether by building career pathways, reducing unintended pregnancies, transforming neighborhoods—or a dozen other outcomes. Although $1 billion pales in comparison to the trillions that have been spent on attempts to advance social mobility, these investments are targeted to programs and policies that are already working or show great promise. When combined, their catalytic effect could make a tangible difference. Indeed, when you add up the billions of savings from enabling generations of Greg Waltons to create their own destiny, the odds of these philanthropic bets seem irresistible.
There is likely to be a range of skepticism about what these three initiatives can actually accomplish and whether they really will deliver returns that range as high as 15 to one. Skepticism is a healthy thing. Even though these three bets, taken together, can potentially impact several million people, that’s not a whole lot larger than a rounding error when compared with the need and with what government could do if it stepped up and funded initiatives that are actually working.
Moreover, these returns on investment are estimates, and the framing of the three investments as “bets” is intentional. By no means are the payoffs certain. The returns include a range of assumptions—not least that the approaches weather inevitable political gusts and achieve their targeted results. Yet one can’t help but feel good about the odds. The bets are built on innovations that are producing verifiable results and technologies that are already preparing low-income children to succeed in grade school and beyond. The bets are really roadmaps, which hopefully will point the way for larger funders (read: state and federal government) to follow.
The cost of the status quo—three decades of stagnant mobility—is far too high for inaction. And the promise of the American Dream is far too great to not bet on it.
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Devin Murphy and Bill Breen contributed to this article. Bielak, Shelton, and Murphy coauthored the report “Billion Dollar Bets” to Create Economic Opportunity for Every American.