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Posted by on Aug 22, 2016 in Featured, The Americas | 6 comments

The High Toll of Being Poor in the U.S.A.

The High Toll of Being Poor in the U.S.A.

Impoverished Americans face a myriad of problems unknown to the middle and upper class, the most significant of which are regressive costs.

Officially, 14.8% of people in the United States live in poverty. Furthermore, 20% of Americans use alternative financial services to pay bills, get loans, and generally afford to live in the wealthiest country in the world. The most common alternative to a retail bank is a local check-cashing store, which charges a percentage fee on the cashed amount (for example, a store charges a 1.5% fee. This means that it will cost $15 to cash a $1,000 check). More affluent Americans that have enough money to escape minimum-balance fees of commercial banks can afford to open a personal account, while facing fewer risks of racking up high fees. On the flipside, as one might expect, the poor and less financially stable are more likely to incur banking fees, and 20% of customers pay a whopping 80% of all bank fees.

"Georgia has long struggled to rein in payday lenders, but even ambitious regulations can’t always stop the predatory practice." PHOTOGRAPH BY MARK DUFFY / ALAMY STOCK PHOTO

“Georgia has long struggled to rein in payday lenders, but even ambitious regulations can’t always stop the predatory practice.”
PHOTOGRAPH BY MARK DUFFY / ALAMY STOCK PHOTO

Since the early 1990s, the payday-loan industry has sprouted up in the place of retail banking, as banks have stopped operating in the short-term credit market. Due to the institution of new service fees and increasing penalties by commercial banks, many customers have switched to the industry that says it is looking out for the average American. Currently, almost 20 million households use payday loans to pay bills and purchase necessities, including food and medicine. However, this comes at a steep cost and with high interest rates. According to an article published by the Economist, the median loan in 2013 was $350, lasted two weeks, and charged $15 per $100 borrowed—an interest rate of 322%. Many Americans get stuck in a debt trap, taking out new loans to pay old ones, leaving them with ever-rising fees. Moreover, often desperate for quick cash, people will use their car or furniture as collateral.

Those Americans that receive tax refunds as a form of state welfare often use refund anticipation checks (RACs) to make their tax preparation fees deductible from their IRS refund. Low-income workers that cannot afford to pay their tax preparers often wait until they receive their benefits to repay their debt. RACs—which function as loans—often cost between $25 and $60 for short-term credit, and usually include additional fees. This inefficient system leads tax preparers to profit exorbitantly at the expense of vulnerable citizens who are simply trying to put their Earned Income Tax Credit to good use.

20150905_USC606Less obvious costs associated with poverty include expensive local grocery stores and lower quality produce, as well as regressive taxes such as sales tax, fines, and expensive housing. Those without cars cannot always easily access more affordable chain grocery stores and must accept the steep price of buying lower quality food for more money. Further, though many Americans wish to purchase a house and pay a mortgage that is less than the cost of apartment rent, a market that is overvalued, they lack the credit and such the ability to pay a down payment. Therefore, they continue to rent relatively expensive apartments, a major long-term expense. Though not unique to poverty in the United States, the cost of sales tax weighs more heavily on the income of the poor than the wealthy, and even one parking ticket can set someone back weeks of disposable income. In 2014, almost half of American families reported an unexpected $400 expense would require them to sell property or take out a loan to pay it off.

It’s hard to imagine so many people being in such a tight spot, having to be concerned with survival and maintenance of their household on an everyday basis. The credit and banking industry is propping up tens of millions of people who live in or on the edge of poverty. The modern financial system has ingeniously allowed us to develop new businesses, invest, see our wealth cultivated, and increase economic growth. However, credit and lending has also allowed people to overspend, misplace their money, and live in perpetual debt. Lending systems shouldn’t be a lifesaver for people that need to buy food, clothes, and pay their bills. They should be a lifesaver for entrepreneurs and generators of business. Our banking and financial services have certainly allowed millions of Americans to keep their heads above water but they have also allowed the nation to ignore the pressing issues of poverty and wealth distribution.

Unique to poverty in the United States, relative to other Western democracies, is a marked lack of worker benefits and employee friendly rights. Minimum wage jobs do not allow for workers to accumulate wealth or transition to a better-paying profession. Many people have no say in the hours they work and cannot manage to work a second or part-time job on the side. The reality that thousands of people with 40-hour workweeks are living in poverty and have a low standard of living is bad enough. The fact that politicians and major employers are not held accountable to improve the livelihood of hard-working, dedicated countrymen is even worse. Most concerning, however, is the lack of moral outrage in regards to the fact that CEOs of the top 500 American companies make 340 times the average production worker ($36,900), and is characteristic of America’s skewed mindset. In our society, excessive wealth and extravagance is lauded, while the hard work of thousands of workers is worth pennies to a CEO’s ideas and management skills. Caring for one’s own and blaming the poor for their situation is a natural reaction in the dog-eat-dog labor market.

"Job seekers stand in line to attend the Dr. Martin Luther King Jr. career fair held by the New York State Department of Labor." (Reuters / Lucas Jackson)

“Job seekers stand in line to attend the Dr. Martin Luther King Jr. career fair held by the New York State Department of Labor.” (Reuters / Lucas Jackson)

The odds are stacked against those that work some of the longest hours and keep this country running. Most minimum wage or low-paying jobs without strong union support have no paid leave. Paid maternity leave is not guaranteed by the government, a feature we share with the likes of Papua New Guinea and a handful of other less developed countries. Over the last 30 years, wages and income have not increased for the poor and lower-middle class. Moreover, many issues the poor face come down to the horrific history of racism and the racial wealth gap in the United States. As white Americans have had better access to investment, major industries, and white-collar jobs for centuries, a serious racial wealth gap has arisen, persisted, and even deepened in the last 35 years. A significant factor to the U.S. system is the lack of equal opportunity. Sociologist Dalton Conley found through his research that the single greatest indicator of children’s economic future is the wealth of their parents. Wealthier families live in richer communities with better public resources and schools, and can afford better colleges, help pay for a house, or provide initial capital for a business. Conley also found that white households on the cusp of the poverty line often have a positive net worth of $10,000 to $15,000, while black households within the same income bracket instead have a negative net worth. Due to historical and institutional disadvantages toward wealth accumulation, coupled with steep debts and expensive mortgages for devalued homes, poor African Americans are often forced to rely on usurious lenders.

The criminalization of poverty is another issue facing the United States. In a yearlong investigation, NPR found that a fourth of misdemeanor convictions result in jail time, not for the crime committed, but instead for the failure of the defendant to pay court fees. Incredibly, in more than 40 states, defendants can be charged for their public defender and if convicted, can be charged for room and board, be billed for probation and parole services, and be charged a fee for the electronic monitor devices they are forced to wear. As the U.S.’ prison population has exploded in the last 40 years, costs of running jails, prisons, and courtrooms have likewise skyrocketed. Rather than increasing taxes, which is an unpopular choice for elected officials, state legislatures have increased fees defendants and the convicted must pay to keep the operation running. In one case, a defendant was even charged for the county fitness center. When defendants pay salaries and maintenance costs of the courtroom and county budget it becomes particularly difficult to distinguish between the purpose of conviction charges and fees—are convicted citizens paying the price for a serious crime or simply paying the price for the judiciary to continue its domineering operation and fund the bureaucracy?20150905_USD001_0

In cases where the poor are apprehended and charged for traffic violations, petty robbery, vagrancy, and other minor, non-violent crimes, they are facing costs they cannot afford, and are thus jailed for the crime of being poor. As Ann Yantis, an attorney for the Michigan State Appellate Defenders Office, notes, “from the defense view, the sentence is meant to be punishment for the crime and to then say that we are going to charge you for the privilege of being prosecuted and sentenced for the crime is somewhat a double penalty.” However, because defendants and criminals are unpopular in the eyes of the public, state legislatures have been able to get away with charging them more and more in the place of raising taxes.

The United States has yet to embrace and support its poor and needy in the last half-century. Long considered a nation of opportunity, those unlucky enough to find themselves clasped in the grip of poverty face insurmountable problems that are unknown to the rest of American society. The lack of compassion and responsibility felt towards our fellow men and women has led the once prevailing welfare state to dwindle. The idea that everyone is responsible for their own welfare and wealth has been proven false yet again, most recently by the Great Recession, which pulled middle class families down and trebled the number of people using the SNAP program. The Great Recession, like many historic economic recessions, hurt the poor and minority groups the worst. Not only was inflation worse for the poor but African-Americans also lost half their wealth between 2005 and 2009.

The distaste for helping the poor in the U.S. is appalling. I would remind those Americans who dislike the idea of increasing taxes and closing corporate tax loopholes to pay for social programs and spending, that this country was largely built on the backs and with the blood of black slaves and neglected immigrants. These members of the underclass did not enjoy the privileges afforded to native white Americans, and to this day lack the respect they and their progeny deserve. I would also remind them what message is emblazoned at the base of the Statue of Liberty.

New Colossus
‘Not like the brazen giant of Greek fame,
With conquering limbs astride from land to land;
Here at our sea-washed, sunset gates shall stand
A mighty woman with a torch, whose flame
Is the imprisoned lightning, and her name
Mother of Exiles. From her beacon-hand
Glows world-wide welcome; her mild eyes command
The air-bridged harbor that twin cities frame.
“Keep, ancient lands, your storied pomp!” cries she
With silent lips. “Give me your tired, your poor,
Your huddled masses yearning to breathe free,
The wretched refuse of your teeming shore.
Send these, the homeless, tempest-tossed to me,
I lift my lamp beside the golden door!”’

6 Comments

  1. I’ve only read the opposing opinions about payday loans from those who apparently are financially equipped and do not fall in the cash strapped category and who live below the government poverty line.
    Many people who work earn less than the government poverty level and must access payday lenders to make ends meet; also thousands of senior citizens (myself included) receive a Social Security benefit that falls below the government poverty level and must utilize the payday lenders to sub-exist month to month.
    The closing of or regulating limited borrowing rules will place many people into a pre-bankrupt phase and cause an overall poverty increase of magnitude. I strongly support maintaining the payday lending business as it exists so as to continue providing a much needed outlet for hundreds of thousands of persons whose only option is to receive a loan through them and maintain their budgets, thus avoiding financial destitution.

    • Hi Sean, thank you for your feedback!

      You point out an important issue with our welfare system in that even people receiving benefits still don’t have enough to get by. As I noted in the article full-time workers often end up living in poverty, which is a problem of a low minimum-wage. I would argue that benefits be expanded and the minimum-wage raised.

      The pay-day loan industry has been banned in 14 states and the District of Columbia thus far. It is hard to argue for a practice that is profiting billions of dollars out of the pockets of poor Americans and the government itself. When people receive benefits and use those benefits to attain short-term credit loans at incredibly high interest rates, these businesses are making money from the welfare system.

      While I agree there needs to be an alternative to commercial banks, which are not accessible to everyone, the payday loan industry is not the answer, as it is causing financial destitution itself. Many customers are fooled by the contracts and end up having to pay back twice the amount they received as a loan.

      My answer to this conundrum would be to institute USPS banking. Both Senator Warren and Senator Sanders have argued for extending short-term credit banking to postal services. This would solve the issue of accessibility as the USPS, naturally, has a broad network and standard practices. Not only would this help low income families but it would eliminate the lender’s incentive to profit off the poor and provide a healthy revenue to help balance the budget.

  2. Definitely a well written article, but I found myself disagreeing with some of the language and the underlying premise therein. For instance, I noticed the word “unlucky” when referring to the poor in this country. I would contend that luck is not the only reason that someone in this country is successful or not, especially when compounded over generations. While it is definitely more difficult for the poor to rise up, it is also true that many times the bad situations of the poor only get worse through bad decisions that they make themselves. Should we feel bad for someone struggling to raise three kids? Or is it perhaps more constructive to wonder if it made sense for them to have those kids in the first place? Perhaps a bit of social pressure to live within your means was a good thing before it was done away with in the name of political correctness and inclusion.

    It feels like this article makes certain assumptions about the motivations and inner turmoils of wealthy people, while at the same time absolving the poor from any culpability for their own circumstances whatsoever. I would point out that while it is somewhat crass to say so, survival of the fittest is on a certain level a type of meritocracy. I believe that although it is absolutely important to do away with obviously exploitative practices, it is also important that we don’t rewrite the history of this country in the process.

    • Hi John, thank you for sharing your perspective!

      I used the term “unlucky” because people are born into poverty and people are born into wealth, as well. For those individuals who find themselves to be a child of a poor family, it is not a consequence of their actions that they find themselves disadvantaged, and thus they are unlucky to be in that situation; as a child born into wealth has done nothing to earn their situation, and is comparatively lucky.

      Poor decision making is surely a significant factor that may lead individuals or families into a debt or poverty trap. However, one might also find that this situation could be corrected by equal education opportunities. In the US poorer communities have far fewer funds than richer districts or counties, and thus due to no fault of their own, children receive a poorer quality of education. Moreover, in our capitalist society and in this incredible age of information, consumers (without internet access and/or free time) are disadvantaged due to asymmetric information, and thus firms can take advantage.

      In the study of economic development, children are represented as investments. Though it costs a lot to raise children, when parents get old and need financial support and face accessibility issues, their investment seems to “pay off.” This is obviously not always the case. Because there is relatively strong social security in the US, average births are under 2 children per mother. In other, less developed nations, birth rates are far higher, because parents hope that if one of their children are economically successful, they can be supported in old age (where the government does not have welfare services for the elderly).

      Access to contraceptives is likewise an issue, as well as sex education. Access to these resources is not equal — the wealthy have greater access.

      My intent was not to reprimand the relatively wealthy, it was simply to illustrate that the wealthier one is, the easier it is to maintain and grow wealth. Likewise, those that are poor face greater obstacles to escaping poverty and growing their wealth. An acute example of this is the financial industry: more than half of all stocks are owned by the richest 1% of Americans. These Americans have the best stock brokers and systems working to increase their wealth as investors; for wealthier Americans, simply having money to lend/invest makes it easier for them to make more money and grow their wealth.

      Meritocracy is an interesting concept in the study of sociology. Many thinkers skeptical of capitalism have argued that the public school system is simply used to develop the proletariat for the workforce, and convince students of the value in meritocracy. Children are already competing in school, working to achieve higher grades than their classmates, when not everyone can achieve an A, as averages are often fixed at Cs or Bs; this prepares them for the adult labor sphere. It’s important to note that meritocracy connotes that everyone can succeed if they put enough effort into their work when in reality it’s a concept based on relativity. Here’s an interesting read if you are interested: http://www.slate.com/articles/news_and_politics/chatterbox/2002/01/meritocracys_lab_rat.html

      I think affirmative action programs can help create a more equal playing field for the poor and disadvantaged in the current system. Having said that, the current capitalist system is not a given, as Marx would argue. It is not the end-all-be-all, competition, survival of the fittest, and the dog-eat-dog world we live in today is not the pinnacle of mankind or the height of humanity (in my opinion).

      Also, concerning the history of this country, it is precisely because of unequal treatment of women and non-whites (for centuries) that their progeny are most likely to find themselves poor and disadvantaged. I would ask you to ponder whether peoples whose ancestors were: enslaved, paid below a livable wage, had their property stolen, faced intimidation, and were not legally permitted to attend school or enter lucrative businesses, deserve reimbursement. In an ideal world of perfect information, would reparations be in order?

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