It's Expensive to be Poor

Being poor in the US is hard enough. In addition to the difficulty of feeding a family or attempting to get around inexpensively in an environment designed to optimize dependence on the automobile, new research demonstrates that people in the lowest quintile of the income range have expenses double what they actually earn in take-home pay.

The financial crisis and recession highlighted the decline in household income and net worth, but that also triggered more in-depth analysis. What it suggests is that the problems exacerbated by the post-crisis downturn were more structural than cyclical. That the disadvantages of being poor are built into the system and may contribute to a sustained inability to rise out of one's socio-economic condition thanks to cost disadvantages that further heighten the challenges people in that situation already face.

The current political climate does not lend itself to solutions. Those would probably require subsidies or regulatory oversight for which there appears to be little appetite at present.

But unless structural changes are implemented, the cherished notion that an American can be anything he or she wants if they just try hard enough may prove to be illusory. JL

David Dayen reports in FDL:

A new study from the Bureau of Labor Statistics show a persistent problem in America, that it’s actually expensive to be poor.

The average individual in the lowest 20% of the income ladder had take-home pay of $10,074 and average expenses of $22,011.
That’s more than double, and it makes being poor nearly impossible to manage. The story for the second and third quintiles weren’t much better, with their expenses roughly commensurate to their income, meaning they live paycheck-to-paycheck and save next to nothing. But the expenses-versus-income report for the poorest Americans is almost unreal.

The Huffington Post puts some of these numbers in context:

This percentage of households includes many retirees, who are presumably living off savings.

Many of these households may be spending more than they earn through some combination of loans from family and friends, credit cards, savings, and payday loans. The government helps a bit with an income tax credit: The average bottom-fifth household’s after-tax income is $269 higher than its before-tax income. The income accounted for includes welfare and Social Security benefits.

Many are also taking on debt. In 2010, roughly one-quarter of the poorest fifth of households held a high debt burden, or had debt service payments exceeding 40 percent of their income, according to the Economic Policy Institute.

These households mainly are spending on necessities such as food, shelter, utilities, clothing and transportation. The average bottom-fifth household spent 87 percent of its after-tax income on housing alone last year.

The retiree component makes this a bit better (provided that you plan for retirement by maintaining savings and taking in little or no income in those retired years), but not by much. But the high cost of being poor is well-understood. They lack good transportation access and often pay a lot to get where they need to go. They never build equity in a home or qualify for mortgage interest deductions, so their housing costs are unnecessarily high. They experience mostly downward pressure on their wages. The feel the effects of the most volatile inflationary spikes, in food prices, more deeply than others, as it’s a more substantial part of their discretionary budget. Poor housing often means higher relative heating and cooling and utility bills. Most important, with many necessity costs fixed, they have to borrow just to survive, and this leads to high borrowing costs. The costs of being unbanked factor in here, as payday lending outfits and check cashing stores abuse their customers by bilking them with high fees. Poor credit scores mean this class of Americans are often locked out of more traditional borrowing outlets.

With the poor living with a mass of debt over their heads (and increasingly the middle class as well, with 1 in 5 households now suffering from student debt), this would be the worst possible time to cut their benefits as part of a “grand bargain” to ensure “shared sacrifice.” These people have nothing available to sacrifice