3 First, income inequality has widened notably since about 1980.4 Second, and more distressing, is a relatively low rate of economic mobility, or the degree to which individuals or families can move up or down in the income distribution over time. For example, the fraction of children who earn more than their parents has fallen from 90 percent to 50 percent over the past half century, and only 37 percent of parents believe that their children will be better off financially than they are, according to a recent Pew Research Center survey.5 High inequality combined with a low rate of mobility is particularly problematic in a democratic society. In short, it means that being born into a low-income family is likely to severely limit an individual’s opportunities and well-being over his or her lifetime. The United States fares notably weaker on both dimensions relative to its OECD peers.6 That is concerning, and something we should be working to address. One significant initiative we have taken within the Federal Reserve System is the establishment of the Opportunity and Inclusive Growth Institute at the Minneapolis Fed, which conducts research and makes recommendations on the structural barriers to economic advancement in the nation. The New York Fed has been, and will continue to be, an active participant and supporter of this initiative. Let me now turn to the primary routes of economic mobility and the impediments that too often block them. The primary avenue to higher incomes for most people is investment in their human capital, namely through education.

Many aspects of the college attendance decision are complex and hard to predict, especially for students from families without much experience with higher education. For example, research indicates that decisions about college attendance are highly correlated with an understanding of the future payoffs from attendance and particular majors.9 New York Fed research shows evidence of systematic underestimation of the average benefits—and overestimation of the costs—of a college education, with larger biases among lower-income and non-college households.10 Families may not realize that listed tuition prices may not be what a particular student actually pays. Moreover, misperceptions about the net return from a college degree can be consequential, influencing parents’ expectations and intentions for their children’s college attendance. Importantly, however, these expectations are not hardwired. Evidence from an information experiment indicates that students do respond to new information by revising their expectations and their education choices.11 This suggests that making information about higher education decisions more available to families—particularly those with less experience with higher education—is a promising way to expand economic mobility. I was fortunate as a child that I didn’t face this problem. Both my parents went to college and there was no doubt among us about the payoff from higher education. Another concern is the lack of college preparedness among new college entrants. Nearly seven out of 10 students entering public two-year institutions and four out of 10 students entering fouryear public institutions take remedial courses in college.12 Generally, these are courses they should have taken in high school.