By Jesse Cook, clarkhoward.com
There are a number of obvious difficulties associated with being in the low-income bracket of the economic hierarchy. The inability to save for the future, afford good healthcare and purchase necessary products are just some of those hardships.
In fact, being poor can be a vicious cycle that makes it far more difficult to be upwardly mobile in our society. It seems easy to call people out from the perch of the middle class, but it can be downright disheartening to be poor in America.
There are a number of daily struggles that low-income individuals face that are simply unfelt in more economically secure classes. Below, we’ve compiled a few examples of how being poor can actually lead to spending more money on certain services based on income.
Often presented as one of the best options for low income households to save money, bulk purchasing and storing is actually a difficult shopping practice for most poor families to partake in. While many retailers advertise bulk purchases as a means to obtain the best deal on necessary goods, research from the University of Michigan suggests that those who would benefit most from these deals are not able to take advantage of them.
Low-income families don’t have the economic flexibility to spend the extra money to purchase items in bulk, which can save buyers as much as 25% on typical household items like toilet paper. In the study cited, toilet paper is the specified item being researched, but these results could be applied to almost any product that a typical low-income family would purchase.
The underlying problem is this: Households that would benefit most from these low costs are unable to utilize them because of economic limitations. And, no dig at Costco, but it costs $55 just to get in the store and start shopping.
Additionally, absolute necessities like food can be difficult to obtain for a fair price considering the frequency of “food deserts” in low-income areas. These areas are dubbed “deserts” because of the limited supermarket options compared to suburban areas. In lieu of standard supermarkets, low-income neighborhoods often contain overpriced convenience stores or low-priced, but unhealthy, fast food restaurants.
While fast food may cost as much or less than purchasing groceries at a store, the long-term financial trouble of consistently buying from these locations can be felt in their effect on an individual’s health. A Harvard study shows that healthy meals often cost an average of $1.50 more per day. That isn’t chump change when we’re talking about people already struggling to get by.
Along with these basic challenges associated with purchasing goods, low-income families also suffer from a number of banking challenges. Those difficulties can easily lead to unwanted overdraft fees, monthly maintenance fees and check-cashing fees. Additionally, many banks charge monthly fees based on how much money is in the account. These fees are geared toward accounts that fall under a certain standard account balance.
For example, Wells Fargo charges a $5 monthly maintenance fee if an account does not hold the $1,500 minimum, or receive a monthly direct deposit of at least $500 a month. Bank of America follows a similar tune, but only requires a $250 direct deposit. While these fees may appear minuscule, they quickly add up when every dollar counts. Especially, if the maintenance fee leads to overdrafting on the account, which can net an additional $30 or $35 fee.
These problems can be compounded by the fact that many low-income neighborhoods also struggle to maintain accessible banking options. This means that areas where low-income families can typically afford to live, there is a lack of banks, which means that simply cashing a check can require additional fees. If someone is unable to open a checking account, or doesn’t have access to a branch near their home, they will have to make and cash checks at a grocery store and other merchants who provide check cashing services for a cost. This means that the simple act of receiving and spending income can become a lengthy process of driving to a service center, paying for the service and then getting to the desired destination to purchase goods. This not only costs money, but time.
Unaffordable college tuition
Low-income individuals also struggle to meet the growing cost of invaluable services like education. While financial aid is often viewed as a means of assisting low-income students in attending college and climbing the social ladder through education, new research finds that financial aid awards are becoming a tool for college administrators to select desirable students to attend their universities.
Reports from the Lumina Foundation and New America Foundation show that colleges utilize financial aid offers not to assist low-income students in obtaining higher education, but rather to deter these students from attending the university.
Utilizing a practice called “gapping,” which works by providing low-income students inadequate financial aid to meet their needs in order to provide wealthier students more money (read: more incentive) to attend the university, colleges are able to draw in more income from attending students.
USA Today provides a nice example of how this benefits the college: “A school gets more return for its money if it can give away four $5,000 scholarships to students they believe are likely to succeed at their institution, than by awarding one $20,000 scholarship to a particularly needy student.” The ultimate goal is to fulfill enrollment quotas while simultaneously achieving maximum profitability at the expense of students who need the most help.
Expensive car insurance
While it is assumed that car insurance is based on one’s driving history and geographical location, there is also research that has found that income level also plays a factor in car insurance premiums.
The Consumer Federation of America found that individuals with lower incomes paid roughly 59% more on car insurance per year even when the individual’s driving record was clean. Additionally, they found that certain insurance companies rely on credit scores to determine the premiums an individual will pay for insurance. With these practices, low-income individuals will more often be viewed negatively and charged more for their insurance.
What these examples show is that while there are ways for low-income individuals to save money and get assistance, a number of services are simply stacked against them. This is even more frustrating considering the seemingly limited options an individual has to combat these price inequalities. That makes it even more imperative for low income individuals to do research before committing to an insurance company or bank.
A little patience can go a long way in ensuring that you get the best deal for your money, and avoid paying more than you should!