The High Price of Poverty in America

It costs a lot to be poor in America; at least that’s the conclusion of a Washington Post Wonkblog column by Max Ehrenfreund. Ehrenfreund found a Reddit thread that showed how the poor often end up paying a lot more for a lot less.

The column does a great job of exposing the high cost of poverty, both to the poor themselves and to society. It also shows why it is often far harder to escape from poverty than many people would have us believe yet it points to a path out of destitution.

One reason why the poor stay poor is that they often lack the opportunities to save money that middle and even working class Americans enjoy. By save I don’t mean put money in a bank account, which is obviously important, but simply pay less to live. Middle class people often have a better lifestyle and more money to spend because they get more opportunities to save money.

How the Poor Pay More

A middle class person that can afford a Costco or Sam’s Club membership, which costs around $50, and can drive to either of those of stores can save a lot of money, as the blogging legend who calls himself Mr. Money Mustache found out. When he crunched the numbers, Mustache discovered that the $401.48 worth of groceries and household essentials he purchased at Costco Wholesale (NASDAQ: COST) would have cost $690.97 at Safeway and Target (NYSE: TGT).

Mustache calculated that Costco costs 41% less than Safeway (NYSE: SFWY), and remember, Safeway is a big chain supermarket with fairly low prices. Now just imagine you are a poor person that has no car and doesn’t live within easy walking or perhaps public transit distance of Costco or Sam’s Club. You’re automatically excluded from that kind of savings.

Or if you’re a poor person who lives in a small town and owns a junky old car that cannot survive the long drives to a place like Costco you too are excluded from that kind of savings and increasingly everyday shopping. Alco, a chain of 198 discount stores that operated mostly in small towns in the West, Midwest and South, just shut down, leaving many communities high and dry.

Nor is it just Costco; some poor people live in so-called food deserts with no supermarkets. The only places they have to shop are so-called neighborhood markets, convenience stores and dollar stores like Dollar Tree; prices at these places are often higher, and quantities often smaller. Dollar Tree sells everything for a dollar; it does that by offering inferior merchandise in very small packages.

A dollar store might sell a bottle of laundry detergent for $4, but it’s only good for a few washes. The poor person will have to go back to the store and buy the detergent again several times. The poor person will have to make several more shopping trips than the middle class person and buy less. If the poor person has to drive or take the bus to the dollar store, that can quickly add up.
Another way the poor pay more is by buying inferior merchandise. The Reddit thread cited by Wonkblog contained this post from a DrStephenFalken and explains how this traps the poor in misery:

“I’m making $150-$200 a week and I need new shoes. So I can buy $60 shoes that will last or $15 Walmart shoes. So I buy the Walmart shoes and some groceries instead of just the $60 shoes and no groceries. Three months later I’ll need new shoes again. But I’ll also have to pay rent and my light bill is due. So I’ll pay the light bill and buy some ‘shoe glue’ for $4 to fix my shoes for another few weeks until I can buy the $15 ones again.”

Time Is Money

Nor is it just club stores that the poor are often shut out of; it is also online retail, which is greatly improving the lives of those who can afford it. A middle class person that needs a new pair of shoes can go online to Zappos.com and order them in about five minutes. The shoes will be shipped to her house, and even if she doesn’t save money, the middle class person saves time, which, as our old friend Scrooge McDuck likes to say, is as valuable or more valuable than money.

A poor person with no bank account and no Internet access does not have that option. He or she will have to take time out and go to a store with far less selection and often less quality. A poor individual’s choices are often to buy cheap, shoddy new goods like DrStephenFalken or to go to the thrift store and hope they have something in your size.

A poor individual might have to take time off of work to go shopping for shoes, costing the family more money. The middle class person can place the order during a five-minute break at work.

Then there’s credit or loans; if money is tight and the poor person is having trouble paying the rent, getting by until the next paycheck, or fixing the car, he or she might end up going to a hard money lender such as a pawn shop or a payday loan company. There he or she will often pay extremely high interest for very small amounts of money that he or she will have trouble paying off.

The middle class person can simply pull out his or her credit card to get by until the end of the month. Even if the interest is high, he or she will still pay less than the poor person and have a much easier time paying it off.

A poor person with no bank account often has no good way to save money. He or she can hide it under the mattress or in the coffee can in the basement and pray that the neighborhood criminal doesn’t figure out where it is, because he or she has no access to a savings account.

The big advantage to a savings account is that it is government insured; the money will be there unless we have a real catastrophe, like nuclear war or alien invasion. A poor person trying to stash cash can lose it all if the house burns down or a burglar breaks in.

This, of course, is only the beginning of the poor person’s problems. He or she has no good way to invest money to buy stocks, to put funds in an IRA or 401k, or to save to buy real estate. Nor in many cases is he or she even in a position to take advantage of opportunities like e-commerce. Basically, the poor person may have no way out of poverty and into the middle class.

We All Pay the Bill for Poverty

Making the poor pay more hurts all of society at the end of the day. Since the poor have less money, they pay less taxes, meaning that the rest of us will end up paying higher taxes at some point. If the government doesn’t get us with tax increases now, it’ll simply borrow money, which cuts future government spending and economic opportunity to cover the deficit.

It also means lower retail sales, lower profits for companies and investors, and fewer jobs in our communities. Poverty, in other words, breeds poverty and makes it tougher to escape because everybody has less money.

As poverty grows and spreads in our society, we need to think about this. The bottom line is that poverty costs a lot of money, and everybody, not just the poor, ends up paying for it at the end of the day.