Why the Poor Pay More
Here’s a Washington Post article that caught my attention about the high cost of poverty. I think the subtitle says it all.
Having Little Money Often Means No Car, No Washing Machine, No Checking Account And No Break From Fees and High Prices.
I can’t imagine my life without a car, a washer & dryer in my home, a checking and savings account, or a grocery store with fresh meat and produce. However, most poor people do not have the means to obtain the basic needs and conveniences that we take for granted. To meet their needs, alternative businesses set up shop to provide similar services…for a fee, of course.
- Most poor people do not have a checking or savings account. When they receive a paycheck, they rely on corner stores or check cashing points that charge fees or a % of the face value.
- Most poor people do not have a washer & dryer in their homes. They have to drag baskets of clothes to the laundromat and spend half a day doing loads of laundry every week.
- Most poor people do not have the disposable income to furnish their homes. They rely on “rent-to-own” businesses that charge 2x the regular price with convenient weekly payments.
- Most poor people live in less desirable neighborhoods. Problem(s):
- Thriving businesses avoid these neighborhoods, so poor people rely on convenient stores or mom & pop shops for their basic food/hygiene needs. These are usually small businesses, resulting in limited selection and higher prices.
- Homes in these neighborhoods are usually older, in need of repair, lack proper insulation, roofing and windows. As a result, the utility bills are 2-3x higher than average.
- Higher auto insurance premiums as a result of crime stats.
- Most poor people do not have the disposable income or credit to buy a reliable car. They may resort to a “buy-here-pay-here” dealer and end up with a lemon that cost an arm and a leg to fix. If buying from a reputable dealer, the loan may have unfavorable terms and a higher interest rate.
- Most poor people have been caught up in payday or car title loans that charge 200% APR (or more) to borrow a few hundred dollars for two weeks.
It’s a never ending cycle that, apparently, is widely accepted as a way of life. From the article:
According to the Census Bureau, more than 37 million people in the country live below the poverty line. The poor know these facts of life. These facts become their lives.
The poor pay more because their options are appear to be limited and alternative businesses charge more to cover their risks. Supply and Demand. But where does the cycle end? And more importantly, when does the focus shift from daily survival to upward mobility?
This blog is all about Finance, Fitness, Fashion & Fun - the sum of my life. If you like what you've read, feel free to subscribe via (feed reader) or (email) to follow along.
Poor neighborhoods unserved by supermarkets (and thus served by ripoff ministores) have come to be known as “food deserts.”
An underappreciated feature of food deserts is that typically, fresh fruits and vegetables are hard to find (and prohibitively expensive) or not available at all.
There is a vicious cycle happening: poor people, by definition having an income shortage, tend to load up on cheap nonperishable carbohydrates rather than on more expensive fresh fruits and vegetables.
Seeking to maximize their profit, the ripoff stores rationally choose to not carry most perishables, especially fresh fruits and vegetables. Even is they wanted to carry fresh fruits and vegetables, the store would price them so high (the same way they price everything so high) that people wouldn’t buy them, the produce would spoil unsold, and the store would stop carrying such items.
I am very happy that I have a small but sufficient money cushion that allows me to stock up on the best weekly supermarket specials, thereby saving me a lot of money on food. I wouldn’t be surprised if I spend half as much on food as the average poor American, and eat twice as well.
Food deserts? Never heard that term before. Interesting.
Re: fresh fruit and veggies. You described a perfect example of the never ending cycle. Poor – prefer cheap(er) non-perishable carbs – limited demand for fresh fruit and veggies – no supply – or limited supply – high price if limited supply – no sale – spoil – bad for business – no fresh fruit and veggies. [-SM]
I would disagree on the few points, but agree on the last few: I’m not disagreeing with anything you’ve written, just responding to each of your points for purposes of discussion. [-SM]
- What is stopping someone from opening a checking account? Fees for keeping a minimum balance? Is part of it that the poor are poor partially because they feel the need to spend their money instantly, or before they even have it, and thus won’t use a bank to store their cash?
Assuming the person is poor, and really poor, not just a frivolous spender, it may be difficult to open a checking account because there are no local banks in close vicinity of their home, bank fees imposed, min balance requirements, and/or restrictions as a result of previous banking mistakes. [-SM]
- Why would it take someone all day to do laundry? I did laundry for 5 years at a laundromat in college and it would take 2-3 hours to do a whole month’s worth of laundry (and I didn’t take it to my parents to do in the interim either).
A young college student with limited possessions can not compare his laundry prowess to someone with a family – poor or not. Even if I do my laundry in one sitting, it still takes ME (a family of 2) an entire day to wash, dry, and fold a load of jeans, dark, color, light color, whites, towels, and sheets. [-SM]
- Poor people who use rent-to-own rather than shopping thrift stores or just doing without some of the furniture are just digging a hole for themselves. If you really want to get ahead in life, you take what you can get and apply your income to more important priorities. It’s a common theme in the PF blogs, including your own, and it shouldn’t be different for the truly poor. What type of furniture do you mean? Couches and beds are the most common free items found in classified ads or craigslist (free internet at the library to access it).
Good points. But you’re assuming a poor person has access to the internet or even transportation to get to the library or a thrift store. Who’s going to deliver the stuff? Also, you have to keep in mind, rent to own stores set up shop in poor neighborhoods to make themselves more convenient, easily accessible, and a preferred option. [-SM]
But I’m with you on the local convenience stores/grocers, reliable transportation and payday loans (when you honestly do need the money in advance). Those are definitely ways that keep the poor paying more just by being poor.
The saddest part is they most poor people, do not see anything thing wrong with these “alternative sources” because that is all they know.
A friend of mine once told me a while back that she was at a check cashing place getting a money order and a guy in line before her must had a Huge check to cash, she over heard the teller telling him that they would charge $600 dollars to cash it, and he said ok, no problem
DAYUM!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! ^%$&*(&
I guess he just did not know any better. He may have been so use of going to these cc places for so long, when he receive a big check (perhaps an insurance settlement) he just went to where he know. Sad Maybe some people just get imtimidated of big banks, who knows
$600? Whoa! How can you NOT blink an eye at $600??? [-SM]
a lot of my neighborhood is without cars also. we do have a “supermarket” if that is what you want to call it. they charge lots more then your regular “chain stores”. WIC items such as formula are bumped up $3-$5. Formula at the “regular” store is 13.07 there it is 17.37. cereal add at least 2 for any kind. i wish there was someone i could complain too about his gouging. got my son chicken wings the other day from there and they had some in the case that expired april 17…huh. even bought outdate pop from there…no it wouldn’t make me sick but it was really flat. this store also knowingly (think they hope someone doesn’t check dates on other stuff) sells outdated goods. i know some things are ok a bit outdate (crackers cookies etc.) but meat ?? lots of people in this city get food stamps but it sure doesn’t stretch if that is the only alternative
Meat expired in April still in the freezer? Ugh! That is DISGUSTING!! And I’m sure it violates health code and probably a ton of other laws too. Please file a complaint with the Better Business Bureau and your state’s Attorney General Office. [-SM]
Wouldn’t a ‘poor’ person’s friend (poor folk got lots o’ friends, that i know!) tell them that it’s cheaper just to save the $$ and use it then? Or do they have too much shame to ask for rides to the grocery store so they can buy groceries once a month? or a ride to whereever it is? I understand in certain circumstances (the laundromat b/c of apartment) it’s unavoidable, but don’t people (and I mean ANYONE) know about interest rates and how that jacks up the price? This sounds to me like a case of “Want it NOW” syndrome…
Good point about the interest rates, but I’m not sure about the grocery store comment.
Do you buy ALL of your groceries once a month? If so, I assume you only buy non-perishables? No fresh fruit, veggies, yogurt, eggs, milk, etc.
But I’ll humor your idea. Let’s say you had a once a month ride. What if you ran out of food before the month was over – yanno, that’s very possible if you have children. I assume your family will starve until your ride showed up, right? Or I could “just tell you that it’s cheaper just to save the $$ and use it then.”
I don’t expect an answer to my questions, just trying to help you see how your perspective may be a tad unrealistic.
By the way, when I was poor, I had LOTS of friends. But guess what? My friends were poor too!! None of us had a car. Asking for a ride had nothing to do with shame, but everything to do with limited resources or access to better resources.
It is very easy to say what a poor person SHOULD do, but it’s a lot easier said than done if you’ve never lived it. [-SM]
I see the points in this article and a lot of it is true. My sister in law doesn’t have a banking account. Not because she can’t, but because it’s just not what they’ve done in ther family. It took some convincing to show her that paying to get your check cashed was throwing away money.
And I think the issue is not so much being poor, but being un-informed. It wasn’t until just a few years ago that I started seeing all the places I threw away money. I figured that rich people had two bucks for atm fees or 4 bucks for coffee, etc. I think my lack of information led me to believe that only people that have no money complain about paying fees. That’s how a man pays $600 to cash a check. In his mind, he probably thought that since he had the money, why not pay it. He may have even bragged that his check was so big it cost him $600 to cash it.
I’ve never thought has myself as poor, and honestly I’m not, but un-informed? Yes, I have definately been uninformed.
Very good point about lack of information. I imagine there are a select few who make decisions because they just don’t know any better. Heck, if everyone around you is doing it, it MUST be ok, right?
But at what point do you stop and ask yourself, wait a minute, does this make sense? Does this costs too much? Should I be paying this fee?
And what about the people who ARE informed because they have family and friends who try to advise them but they continue to do what they’re accustomed to doing?
I don’t have the answers. I’m just playing devil’s advocate. [-SM]
And more importantly, when does the focus shift from daily survival to upward mobility?
Answering your question, simply when ‘they’ decide to change their own lives. You can feel sorry for the poor all day long but the truth is I lived in one of these trash neighborhoods for almost three years after my divorce. I was surrounded by lazy people who only wanted government handouts and fast money on the streets from sellin drugs. They werent interested in going to school or work because that cut into their social and sleeping time. Those same people made the area I lived in extremely dangerous and no one decent wanted to live or work there. Can you blame them? I’m not talking about a handful people here. It was everyone I came into contact with, they all had the same shifty attitude. If it wasnt free n easy they were not intrested. I went back to school because I WANTED to even though I had a son to raise alone. I still think back to those days of having to live where I lived and I get angry and I wonder how I made it through surrounded by all that ignorance. There is a choice here you know. The only real victims of poverty that I saw were the kids because everyone else made their own bed and thats the real facts.
I think blogs and the internet are wonderful places to learn in none threating environments. I’ve learned so much about money from your blog and others and it’s really openned my eyes in ways that, sadly my parents did not.
Want to hear something crazy? My dad was a union president, made well over 100k per year for probably the last 30 years of his life. It wasn’t until the last 6 months of his life did I ever see how he did his budget! Heres a man that KNOWS what to do, but because of his upbringing, he never showed me how he made sure he had more than enough money. It wasn’t rocket science, you spend less than you make, you pay yourself first, you plan for retirement, but he honestly had never had the conversation with me. The only thing I knew was make more – which he told me when I was in high school. As a result i’ve alway had at least one job, sometimes three, but my quest was always to make more and being smart with what I had didn’t mean what it means to me now.
My parents were really poor growing up. They thought constantly about money. The “gift” the gave me was to never have to think about money. But what it did was kinda cripple my understanding. I never heard them complain about the cost of anything. Never really saw them comparison shop. They seemed to just buy what they wanted. I’m forty and I work really hard to go against that thinking.
I’ve learned that folks richer than me do a ton of comparison shopping, not because they are cheap, but because they are wise/informed.
What a thought provoking topic!
TO Single Ma
I started asking questions, when I kept finding myself in financial strains even though I made good money. I started reading books, asking questions to get more information. But I will tell you money is often taboo.
You either make more than you want folks to know (or borrow) or you make less than you want to be honest about. I just found it awkward to discuss. But even though it’s late, I think I’ve learned valueable lessons that i’m beginning to share with my 13 year old daughter. I will admit, that when I read blogs like yours, it seems I’m late, but better late than never.
This post saddened me but also brought me back to reality. I grew up on public assistance and it was habit to buy most of the groceries as soon as the food stamps arrived. My grandmother bought a lot of frozen veggies but most of it was canned, generic food (remember when generic had the white label with black writing?). When I got my first job, I got my first checking account. Not having the proper knowledge I got in an overdraft position and it was a while before I could get another – had to pay the overdraft balance and fees, plus an extra $50 to open my account. It was a while before I amassed that extra $50 to start all over and even then, I didn’t want to pay the monthly fees for having the small balance.
It is a vicious cycle and I’m not sure how it will change. Part of it is sheer determination for some folks (like me) and then the goal of bringing others along. My sister was in a bad spot with the banks so I got her an account with my credit union. I had to pretty much be her personal banker for a while because she was hanging on to the habits that got her in the predicament – but eventually she caught a clue. Unfortunately, I don’t have the time to hold all the hands of folks I know in that situation so I just try to impart knowledge. Some get it, some don’t.
I actually read this article and begin thanking my lucky stars for what I have. But what’s evident is that some sort of education needs to take place for people. Maybe some resources that can both inspire and educate folks living in less than stellar situations.
I have plenty of friends and family that live like this. And no matter what is expressed to them about their situation, they find it nearly impossible to shift their thought process from short-term to long-term. I’ve attempled to help with budgets, offer advice and bring to ligh other options to assist. But most times that’s to no avail. And that’s because they are merely attempting to survive and can not fathom flourishing.
Think about the neighborhoods these folks live in and the establishments surrounding them. Pawn shops, liquor stores, check cashing businesses and other predatory companies that merely exist to take advantage of them and worsen both their physical and mental condition. Until they decide they deserve more and can do more, this cycle will continue.
I live in one of the poorest counties in the United States and most of the circumstances described in the article perfectly fit the individuals in the community in which I live. I work at a nonprofit legal organization and the majority of our clients do not have checking accounts and most of them rely on payday lenders to provide extra money for their households but at the cost of extremely high interest rates. Thankfully, the state I now live in has basically outlawed payday lending, but, check cashers are still legal.
I moved to Tallahassee, FL a few years ago (just before Katrina, in fact). One of the first things that really startled me was seeing grown men at the grocery store pulling money from their socks to pay for their groceries. No wallet. No backpack. Not even a ziploc bag, they keep it in their sock.
It’s an awful predicament and an unstable way of living. Of course the poor, then, would be most affected by emergencies large and small.
I live in the Bronx in one of the poorest zipcodes. However, there are four different banks within walking distance to my apartment that offer free checking accounts. There is no longer an excuse for most people to use check cashing places.
I will agree with the point about the supermarket. There are three within walking distance but I refuse to shop at them. In order to get to the better supermarket you would need to drive, take the train or the bus. It might be a bit inconvenient but it is doable.
The laundry portion I do not see as a problem of being poor. My laundry is done at the 24 hour laundromat however, whenever I have time. It does not take me all day, even when doing three weeks worth of laundry and linens.
Vicious cycle.
Tell you Ma, for some people having a bank account would really screw up any state/federal assistance they get. Long time ago I was a welfare receipient when I had college to finish and 18 months old baby on my hands with no other income. My welfare check did not even cover my rent and as soon as they found out that I have a checking account (I opened it so that I do not have to pay fees for money orders every month) guess what they did? They kicked me off welfare within a week!!!!!!!!!!!!
Luckily I had an offer in hand for my first job that paid whole $28K per year and I exhaled finally. Never looked back :-)
I can understand if some people do not have a bank account or a car (I do not have a car, living in NYC, I would be using it maybe once a week on weekends, cant drive to work, no parking and transit gets me anywhere I need to go much faster)
But payday loans and such-now that it plain dumb, that I can not understand.
Hmm, very interesting post and comments. It’s easy to paint the poor as “victims” especially a rich reporter, but this really doesn’t jibe with my experience.
I didn’t have a washing machine until the last couple years, so I appreciate the convenience, but I think it was honestly cheaper to go to the laundromat.
This might be a Mexican thing, but the small shops or fruit stands or tamale carts are actually very good sources of cheap food. Honestly, I still go to those neighborhoods for food, often. A lot of the food from Mexico passes through Texas on its way to wherever, so the cheap food is pretty good, really, though you don’t know what you’re going to get.
In my experience, you have a bank account if you’re legal, and you only use a check casher if you’re not legal (or you get paid in cash).
The poor have more options than Rent to Own and so on, and they know it. They’re not that stupid. It’s an I-want-it-now reaction, the American way, if you will. Besides, you Rent to Own something impressive that you MUST have like your stereo, and then it sits on your Goodwill side table. It’s not like you furnish your whole house that way.
I think they need to go back to teaching home economics in school! Education when they are young is the way to get ‘em.
I’m going to need the Post to truly define what they mean by “poor.” Not even trying to be funny but alot of the stuff you mentioned sounds like me, however because of the type of work my hubby does no one would say we were “poor.” The furniture we own didn’t come from a rental store but we got quite a bit of it second hand AND we didn’t have any for a LONG time because my hubby didn’t want to purchase it using a credit card. He felt like if he didn’t have the cash to buy it out right, then we’d have to wait. What’s the difference in paying monthly payments to a rental furniture store vs. paying monthly credit card payments – whose interests can be just as high if not higher?
We also don’t have a washer and dryer (since we moved at least) and altho we don’t wash our clothes at a laundromat, we use their wash and fold services – for a fee.
I suppose my point is, if folks are purchasing items using ANY form of credit (i.e credit cards, personal bank loans) wouldn’t they be considered poor as well?
Thirties are the new Twenties, we just need more Sleep! LOL…