It might sound ironical, however, a recent study conclusively prove that on an average a poor person spends more on the same stuff which an affluent person gets for less. Being broke is already hard for the poor, and then there are other challenges the like the ones listed below that make it extra difficult for the low income individuals. Here are some examples, here are a few expenses that actually cost more for low-income individuals.
Car Insurance
Car insurance premiums are truly difficult to understand. Surprising factors come in to play when your premiums are calculated. In a recent 3 year study conducted by Consumer Federation of America (CFA), it was found
- The cost of state-mandated basic liability insurance is higher than many lower-income Americans can afford and the number of uninsured citizens in this category is higher than the national average as a result;
- Insurers use a variety of socio-economic rating factors that push premiums up for lower-income Americans despite good driving records; and
- It seems that auto insurance companies are not only anti-poor, but also sexists. Female motorists with perfect driving records often pay significantly more for auto insurance than male drivers with identical driving records and other characteristics the insurers use to price auto insurance. If you are poor women then it is double whammy for you.
In conclusion, despite identical cars, driving records and mileage, a poor person pays more premium than a rich person.
College Education
This might surprise many, across the globe in most countries, especially developing countries, the cost of education for the poor is usually less and in addition they get grants and scholarships. However, in the U.S, especially in private colleges the scenario is different. They practice a concept, often addressed as ‘gapping’, to get more money from the poorer students or prevent them from enrolling. The poorer students are often underfunded, and the funds are redirected to help the richer kids. This expense might come as a surprise. The general assumption is that the poorer you are, the more grants and scholarships you qualify for.
That may be true, but many colleges, especially private ones, use a method called “gapping” to squeeze more money out of poorer students—or discourage them from attending altogether. Basically, those colleges offer prospective low income students tuition packages that don’t really meet their financial needs. In a study published in March 2016, New American Foundation says
“…colleges are increasingly using their own institutional aid dollars as a “recruiting tool,” rather than as a means of meeting a student’s financial need…In practice, this means that the highest-achieving students, who often come from affluent families, receive the most generous financial aid packages from their schools.”
This makes poorer students to take bigger loans and end up getting caught in a debt trap, and eventually continue being poor.
General Staples
Rich people often wait for the sale season, and buy in bulk and use the staples for rest of the year (most non-perishable goods). Since, poor people cannot buy in bulk, they cannot wait for the sale season, so they end up spending more for the same product. There is concept called as “the toilet paper effect,” you’re undoubtedly familiar with how it works.
A study from the University of Michigan , titled “Frugality is Hard to Afford”, beautifully demonstrates this concept.
“the inability to buy in bulk inhibits the ability to time purchases to take advantage of sales, and the inability to accelerate purchase timing to buy on sale inhibits the ability to buy in bulk. We find that the financial losses low income households incur due to under-utilization of these strategies can be as large as half of the savings they accrue by purchasing cheaper brands.”
Banking, Credit Cards and General Financial Services
Credit cards are often given based on the income slab, and people with higher income get credit cards with lower APR rates and huge rewards, when poor people not only get lower credit line, but also end up pay very high interest rates. There are fewer financial options for the poor people, so they are forced to rely on expensive alternatives, like, payday loans, or other debt traps. 17% of the poor people say their application to open a bank account was denied. Banks have a monthly maintenance fee, which is waived with a minimum balance of $1500 or above, making banking expensive for the poor. They have to pay a monthly maintenance fee of around $ 10 to $ 25
