Sunday, January 20, 2013

The fundamental inequity of poverty

The really unfair thing about being poor is that things cost more.  Not just in relative terms - when my income halved, my mortgage went from being 20% of my outgoings to 40% - but in absolute, dollars and cents terms. The less money you have, the more you have to pay for the same things.

You can't buy in bulk

If you only have enough coming in to cover the week's essentials, or what you need right now, you can't take advantage of any of the money-saving offers or buy in bulk and stock up. A 250g bag of rice for $4 is obviously not as good as a 1kg bag for $7.50, but if you don't have the extra $3.50 right now, you don't have that choice. You're now paying $16/kg for rice - over twice as much for the same thing as someone with a little more flexibility in their income.

The same's true of just about anything else you buy. Small quantities cost more, whether you're talking about food, washing powder, or season tickets. When you're managing your finances day to day, your cost of living goes up, right when you need to be saving money.

You can't take preventive action

Everyone knows that maintenance is cheaper than repair, but if you can't afford regular maintenance, sooner or later, you're going to have a major incident that will inevitably work out more expensive. It's the same with insurance. In the long term it saves you money, but when money's tight, it's one of the first things to go. And of course, when one of those repair bills comes in, it's catastrophic to your finances. What would have been a quick $50 maintenance job if you'd had some spare cash turns into a $500 disaster.

Finance costs you more

If you have money, you don't pay bank fees. The banks will fall over themselves to offer you free banking. When you're not earning as much, though, then you suddenly find that every month, the bank starts charging you just to keep your account open. And if you accidentally slip up and go overdrawn - often thanks to those damn service charges - you'll end up with hundreds of dollars in surcharges, right when you can least afford them.

The cost of credit is also often tied to your income. The less you earn, the more expensive it is to borrow money - not just cash, but car payments, mortgages, and so on. If you don't have the cash for a $400 fridge when you need one, the actual cost over a few years could work out to way over $1000. If you were earning more, but still wanted credit you might only end up paying $600 for the same fridge.

You also don't get the opportunity to pay bills in instalments when your income isn't great. Not only does this mean you have to find the entire sum in one go - a huge problem when you're living week to week - but many places give you a discount if you spread your payment. It's only poor people who pay full price.

You can't buy money-saving devices

Technology is full of gadgets that can reduce your outgoings. They involve a bit of up-front cost, but your monthly bills will go down, and over a year or two, you'll see big savings. These can be simple things like heat-reducing window coatings, low-flow shower heads, or energy-saving refrigerators. Looking at larger items, a new a/c system, a new boiler, or installing solar panels will have a big payback over a few years, as long as you have a few grand spare to install them.

When things are tough, it really hurts to realize that our economic system is designed so that you're paying over the odds for almost everything you buy. Not only do you have less money, but what you do have doesn't go as far. It's a cruel double whammy.


Michael Davis said...

Of all places, the usually sophomoric Cracked has written a couple of good, if slightly overlapping pieces on this. I feel you, man. Been there.


Sheila, Canary Islands said...

“The reason that the rich were so rich, Vimes reasoned, was because they managed to spend less money.

Take boots, for example. He earned thirty-eight dollars a month plus allowances. A really good pair of leather boots cost fifty dollars. But an affordable pair of boots, which were sort of OK for a season or two and then leaked like hell when the cardboard gave out, cost about ten dollars. Those were the kind of boots Vimes always bought, and wore until the soles were so thin that he could tell where he was in Ankh-Morpork on a foggy night by the feel of the cobbles.

But the thing was that good boots lasted for years and years. A man who could afford fifty dollars had a pair of boots that'd still be keeping his feet dry in ten years' time, while the poor man who could only afford cheap boots would have spent a hundred dollars on boots in the same time and would still have wet feet.

This was the Captain Samuel Vimes 'Boots' theory of socioeconomic unfairness.”

― Terry Pratchett, Terry Pratchett's Men at Arms

Matt Kelland said...

Pratchett often says things very right. Here's my favorite, from Going Postal:

Moist Von Lipwig: I'm just a con man!
Mr. Pump: You have killed 22.8 people.
Moist Von Lipwig: I've never so much as drawn a sword.
Mr. Pump: You have stolen, embezzled, and swindled. You have ruined businesses and destroyed lives. When banks fail, it's not bankers who starve. In a thousand small ways, you have hastened the deaths of many. You did not know them. You did not see them bleed. But you snatched bread from their mouths. There will be no running.