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Monday, April 29, 2013

The Cost of Being Poor (part 1)

This is the first of a two-part series on the high cost of being poor in the United States. 

It's expensive to be poor.
"The poorer you are, the more things cost. More in money, time, hassle, exhaustion, menace" says the Washington Post. Most of us wouldn't be able to afford it.

In most states, minimum wage is well below the living wage (there is a big difference in those terms; see post Whose Bad Economy?)  Minimum wage is rarely enough to cover housing costs . One can work full time and still not earn an income that is above the poverty line. Families are forced to make tough choices to stay afloat, living paycheck to paycheck with no opportunity to save. All this in a world where everything is more expensive when you're poor.

The cost of food is higher. Don't even try to buy healthy foods (if fresh fruits and veggies are available at all). Without a car, or money for gas to drive to the suburbs, grocery shopping must be done at small convenience stores that often charge significantly more for basic groceries:
"A local convenience store recently sold Campbell’s Chunky chicken noodle soup for $3.69; Hellmann’s mayonnaise for $4.39; and Jif peanut butter for $3.79. Two-and-a-half miles away, a supermarket sold the same brand of soup for $1.99; mayonnaise for $3.29; and peanut butter for $3.29. If Jif was too expensive, Peter Pan was $2.69. The difference: As much as $3.90 for three items. Fill up a shopping cart and you will quickly see how the poor pay more for food."

A packet of koolaid will always be cheaper than milk, and it is certainly a lighter load if you have to carry it home. Maybe you do have a car to drive to cheaper locations, but if you're below a certain income level, you'll pay more for insurance: "In New York, Baltimore and Hartford, they pay an average $400 more a year to insure the exact same car and driver risk than wealthier drivers." Indeed, "Among the working poor, 13% of income is spent on commuting if public transportation is used, 21% if a private vehicle is used. Workers who earn $45,000 or more spend 2% of their income on commuting.

The Cost of Being Poor
Click to enlarge
this infographic
Housing is another issue. In the midwest, the mortgage on a four-bedroom house is ~$600/month (and interest is tax deductible). But without good credit, or money for a downpayment you end up spending over $1000/month to rent a fraction of that space (with no tax deduction). And even renting requires at least the first month's payment up front, along with a security deposit. Without that kind of cash, your choices are to pay per night at a motel (~1500/month), or live on the street.

Even using money itself is expensive. Checking accounts often charge monthly fees unless one maintains a minimum balance or direct deposit. Without a checking account, it can cost significant fees to cash a paycheck. Without checks, one is also often charged a fee to pay utility bills. And sometimes the money's just not there to pay for food and for the electricity, so you put off the electricity bill, even though you know you'll incur a late fee. And saving money for the future? Worry instead about surviving today.

So without access to banking services, many must turn to predatory payday lenders. You can borrow $300 for a $47 fee. That's only if you pay it back within a week (806% APR). But now at least your rent is covered. Credit card interest rates also vary by income. Making standard minimum payments, it will take 13 years to pay off a $4000 credit card balance carrying the typical 11.5% APR. Bear in mind that the majority of uninsured folks carry over $2000 in medical debt alone.

Continue to the next installment on the high cost of being poor... 


  1. We've also recently learned how much more expensive it is to insure a house if you live in a low income area of town versus living in the suburbs.

  2. This is an awesome piece.

  3. I wish you would expand more on transportation costs! Getting to work is incredibly expensive for so many! I spent three years in college (graduated early) without a car. This limited me to working only nearby so that I could walk or bike to work. My family only ever had one car growing up. Maintenance and repairs ate away at our expenses and we could only ever afford liability insurance, so we had to be uber careful - if an accident was ever our fault (which once happened) we ended up without a car for months.

    I remember taking the bus with my dad regularly, and it was always late. The bus was actually a very fun experience, very social and had A/C I remember preferring it to our car.

  4. We never owned a house growing up for this very reason, and others of course. No credit. No way to get credit. My parents worked hard too - but there was only so much they could do. Rental insurance for the record is not cheap either and sometimes we went without and just hoped nothing happened.

    We had a piece of board rather than a glass door for a while because that was the landlords way of fixing it. I guess technically it was fixed.....

    Your site is reminding me of things I haven't thought of in years, thank you.

  5. So right! Transportation could be a whole post on its own!!

    Actually....if had interest in writing it, I would definitely feature something like that as a guest post...


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By Their Strange Fruit by Katelin H is licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Unported License.
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