Poverty is a serious problem that plagues a large portion of the American population. According to the Census Bureau, in 2017 “1 in 8 Americans are living in poverty”, 1 which is 40 million people, or 12.7% of the population. Almost half of those in poverty, around 18.5 million, were living in deep poverty, with an income below half of the poverty threshold. 1 But what is the actual impact of being poor? The primary things that affect the working poor are higher costs of living, paying more for basic needs, and higher interest on lending.
Higher Cost of Living
Child care can easily add up to $13,000 a year, which amounts to 50% of income. 2 This means, without assistance, working is extremely costly for single or dual income earning parents. To add to this, most low wage workers are typically not eligible or cannot afford employer sponsored healthcare.
And although parents are eligible for HUSKY benefits so long as their income doesn’t equal 150% of the poverty level, parents of a family of four would lose coverage if they had a total income of over $28,275. 2 What’s more, private healthcare for low-wage families is extremely expensive, which could have devastating financial consequences to an already struggling family.
But it doesn’t stop there.Transportation for low-income families is often costly as they rely on subprime lenders or high interest rates. Furthermore, a recent report found that auto insurance companies charge 30% more to cover people living in poor neighborhoods. 3
Paying More for Basic Needs
Poor communities have less access to healthy food and other necessities. Families in poverty stricken areas often pay 18% or more for food since local businesses are not able to take advantage of economies of scale. 2 Healthier food costs on average about $1.50 more per day 4 than less healthy food. This makes sense to the poor in the short term, but large amounts of salt and refined sugar lead to major health problems like diabetes and heart disease down the line. And when it comes to housing, things aren’t much better. Home insurance in poor communities costs more—often in the range of 1.5x higher. 2
One way that many Americans slip into chronic poverty is through the practice of predatory, high cost lenders offering small loans with big consequences. Payday loans are often a last resort for low-income people that are living paycheck to paycheck and can’t meet recurring bills. But with interest rates sometimes up to 400% 5, these types of loans are nearly impossible to pay back. Often times, this causes people to borrow even more in order to stay ahead of the interest on their original loan. Overtime, this can drive people deeper and deeper into debt. And in some cases, high cost lenders will sue their customers if they cannot make payments. Since the beginning of 2009 high cost lenders have filed more than 47,000 suits in Missouri and more than 95,000 suits in Oklahoma. 3
The costs associated with low-income families is extremely high—from higher interest rates on loans and more expensive housing and more. Fortunately, financial institutions have the tools and ability to positively impact these communities. Through financial advocacy programs and more affordable loan options, financial institutions can help combat the systemic problems that come from being poor in America.