The American Dream looks very different in different zip codes. For some, it’s a dream rooted in financial prosperity, home ownership and building a legacy for future generations. Frankly, if you are reading this article, you likely identify with this version of the dream. However, for many others, achieving a moderate degree of financial stability for their children is the foundation of their American Dream.
Both pursuits have challenges, and the current economic realities of inflation, increased interest rates and potential contagion from the current banking crisis can erode any semblance of security and certainty. For those of us with stability, it may push aspects of our vision further down the road. But for others, these conditions reinforce a cycle of intergenerational poverty.
However, overcoming this cycle is not insurmountable. Changing the way financial services industries approach the real estate market and wealth management can help make a range of American Dreams come true.
Rise of Financial Awareness
The proliferation of retirement savings plans, and the Internet Age ushered in a wave of financial awareness. Limited educational programs about creditworthiness, credit scores and rapidly appeared as Americans moved beyond traditional savings accounts and explored ways to save and generate wealth. Financial awareness became a household topic and was no longer relegated to the wealthy, but a deep understanding of these opportunities was still limited.
The financial services industry grew and lowered traditional barriers to investment in tandem with Americans becoming more involved in personal finance. This trend is not expected to slow, especially when $68 trillion in wealth is expected to transfer between generations in the next decade.
Wealth Management Shifts Requires More Education
However, as more Americans gained access to financial wellness and investment opportunities, the disconnect between those with financial education and those without becomes readily apparent. Comprehensive education programs must be available to the broader population too. Schools and universities should adopt and develop programs to ensure students have a solid base of financial literacy. This responsibility should also fall upon the industry offering easy access to more complex tools and solutions.
Financial education must be available for all demographics and socioeconomic levels, creating awareness and identifying opportunities for all. With proper education and support all workers can develop long-term plans regardless of salary. Pro-bono and low-cost programs should be made easily available to allow more Americans to save for retirement.
Real Estate Changes
U.S. homeownership has steadily risen since the onset of COVID-19 in early 2020, with significant gains among Hispanic, Black and Asian households. An estimated 42% of homes are considered equity-rich or owners owe less than half of their home’s value on the mortgage.
This makes home equity, estimated at $21 trillion in the United States, a valuable and untapped asset for many individuals, especially those seeking to end a cycle of intergenerational poverty. Many Americans leverage the power of home equity through loan-type products like reverse mortgages and home-equity lines of credit (HELOCs), but there are new options now available that don’t require a monthly repayment.
Home-equity agreements (HEAs), also known as home-equity investments (HEIs), are not debt instruments, but agreements between an institutional investor and a homeowner. The investor purchases an equity stake in the home and in exchange provides a cash infusion to the owner.
After a pre-determined period, both parties can extend the agreement, with the homeowner repurchasing the equity stake or by selling the property and dividing the proceeds accordingly. This option can be worth exploring for a home owned across multiple generations. But as with traditional vehicles within the wealth management spaces, more education must take place to ensure all homeowners understand the risks and opportunities of these vehicles.
We have the tools to address intergenerational poverty — pushing millions out of a cycle of despair toward one of stability and hope. And if we want to build a better society, one in which a rising tide actually lifts all boats, we need to do the work today to replace the life rafts with seaworthy ships for many of our fellow Americans.
Ashley Bete is CEO and Founder of Leap Analytics, a fintech real estate investment firm with a mission to empower underserved communities to help close the wealth gap.
