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The High Cost of Poverty

I tossed this into tab dump last night, but The Post'sDeNeen Brown's article on the high cost of being poor is really worth a full read. Brown focuses on a few costs: Those of goods, like groceries, which tend to be higher in the stores that serve low-income consumers. And that of wasted time, which low-income workers often have less control over.

But she also includes a nice section on financial services. Part of that question is financial literacy. A lot of folks don't know enough about credit to not get taken advantage of. And payday lenders and check-cashing services and car title loans are pretty good at figuring out how to take advantage of ignorance. But part of it is a simple lack of power. If a bank won't serve you, or you don't have the transportation necessary to easily reach a bank, then what choice do you have if you need money quickly? A $46.50 fee on a $300, seven-day loan is several types of insane, but it might well be preferable to the consequences of turning your rent in late.

By Ezra Klein  |  May 19, 2009; 3:20 PM ET
 
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Comments

It would be nice to eliminate the legal barriers to competitive alternatives to payday lending, like crowdsourced credit and advancement of credit through LETS systems. Many of the old capital-aggregating functions of conventional banks could be performed by ordinary people for themselves through cooperative organization and network technology. But banking regulations impose massive entry barriers.

Posted by: freemarketanticapitalist | May 19, 2009 3:52 PM | Report abuse

I agree, Ezra. It is easy to sit out here in suburbia and act outraged that the poor are so stupid that they still smoke, purchase a poor diet, live on payday loans, don't understand the basics of finance, etc. Until you experience their world, have the eduction they had, live where they do, you can not judge the rationality of their actions.

Posted by: scott1959 | May 19, 2009 4:30 PM | Report abuse

A lot of the complaints were just lame. Why can't the one guy get a bank account? Why can't the other guy get a supermarket discount card? They could, of course, but they are apparently too incompetent/lazy/unintelligent to do so, so they end up spending money they don't have to.

Generally the biggest extra "costs" that land on the poor come because the poor usually have no precautionary savings at all fall back on. If they would be willing to just forgo some things for a short time they could build up a little cushion that would keep them from having to pay all the extra fees, etc. If they get some sort of windfall, they just spend it. I've read a number of books about the lives of poor people (e.g. "American Dream," "Hope in the Unseen,") and you consistently see this same pattern.

Posted by: sideshowmel | May 20, 2009 1:42 AM | Report abuse

http://online.wsj.com/article/SB123966856055415377.html

Posted by: rothmanp | May 20, 2009 5:51 AM | Report abuse

Someone needs to establish a non-profit or a barely sustainable business that is partially funded donors and locates by these pay day lenders all over the country. Some reports say that they charge over 2000% interest in some areas (on an annual basis). Someone should locate close and charge a more reasonable interest rate. Maybe something modeled off of the Grameen Bank.

Posted by: econowonk | May 20, 2009 9:05 AM | Report abuse

http://www.grameen-info.org/index.php?option=com_content&task=view&id=464&Itemid=551

This is the link related to the above post.

Posted by: econowonk | May 20, 2009 9:07 AM | Report abuse

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