In the recent Democratic presidential debates, many of the candidates bemoaned the income inequality that we see in the United States today. While the candidates typically point to the “structure” of our capitalist society as the primary reason for this inequality, they fail to discuss another important factor that is causing the disparity in income — I call it the “family capital gap.” Family capital is the resources — human capital, social capital along with financial capital and other tangible assets — that a family provides a family member as the result of membership in the family. In my recent book, "The Family Edge:" How Your Biggest Competitive Advantage in business Isn’t What You’ve Been Taught ... It’s Your Family," I document both the advantages of family capital and how family capital has been declining over the past several decades. I also discuss how families can create, preserve and transfer family capital across generations.
One of the best ways to generate wealth in today’s economy is to start a business. As my research team analyzed U.S. census data from over 8,000 families, we discovered that children who grow up in families that have significant family capital start businesses at a much greater rate than children who have little family capital and that family capital is also correlated with the success of those businesses. When looking for resources to start a business, a budding entrepreneur typically looks to the resources found in his or her family. And the more family resources available, the more likely a person will start a business that will succeed. Moreover, family capital is correlated with the well-being of these children and helps them become productive members of society even if they don’t become entrepreneurs.
In contrast, those children who grow up in family situations that are fraught with instability and lack a supportive extended family network tend to fare poorly educationally, socially and economically when compared to their counterparts who have access to abundant family capital. Moreover, millennials, who are at the prime age to start new businesses, aren’t as active in starting companies as previous generations. Today, there are about 400,000 new start-ups in the United States each year, but a decade earlier, there were about 500,000 new businesses started annually. We believe that the lack of family capital afforded millennials is largely behind their relatively poor entrepreneurial performance. They have grown up in families that have been more unstable and less nurturing than previous generation, and thus have less family capital to draw upon.
Data regarding American families demonstrates how fragile families are today. For example:
- Marriage rates are at historic lows. In previous generations, marriage was deemed by almost everyone to be a primary goal in life. Now, 1 in 7 adult Americans say they never want to get married.
- Birth rates are nearing all-time lows (1.77 per woman) — not even high enough to replace our population.
- Slightly less than one-half of all marriages in the U.S. end in divorce. The divorce rate in the 1960s was about half that, around 25%.
- There has been a 3,500% increase in cohabitation in the United States since 1960. Cohabiting relationships tend to be more unstable than marriage relationships which can have a negative impact on both partners and children.
- Forty-one percent of American children are born out-of-wedlock today (versus about 5 percent in 1960). These children typically grow up in poverty and have more behavioral problems and do poorly in school.
These data indicate that the family in the U.S. is in decline — people don’t want to get married and have children — and relationships between partners are more unstable than in the past, making life more challenging for them and their children. This lack of commitment to relationships is also part of the “hook up” culture of today where casual sex is a common practice. Unfortunately, this has led to all-time high rates of sexually transmitted diseases in the U.S. (about 20 million new cases per year) and the Centers for Disease Control and Prevention reports that 110 million Americans, about one-third of our population, has a sexually transmitted disease, costing the individuals affected, their families and the economy billions of dollars each year, not to mention the pain and suffering.
There are no simple answers to the challenges facing families today. However, premarital counseling, enhancing relationship courses for couples, effective pre-schools, tax incentives to encourage couples to stay together, frank and open sex education training for youths, and other programs to support families should be encouraged. If our presidential candidates really want to attack the roots of income inequality in the U.S., they should focus their attention on supporting values and programs that encourage stable marriages and creating a supportive family environment for children. Strengthening families and family capital is the best way forward to ensure economic prosperity for all.