It’s expensive to be poor

[GMDino]

http://www.economist.com/news/united-states/21663262-why-low-income-americans-often-have-pay-more-its-expensive-be-poor

Quote:WHEN Ken Martin, a hat-seller, pays his monthly child-support bill, he uses a money order rather than writing a cheque. Money orders, he says, carry no risk of going overdrawn, which would incur a $40 bank fee. They cost $7 at the bank. At the post office they are only $1.25 but getting there is inconvenient. Despite this, while he was recently homeless, Mr Martin preferred to sleep on the streets with hundreds of dollars in cash—the result of missing closing time at the post office—rather than risk incurring the overdraft fee. The hefty charge, he says, “would kill me”.


Life is expensive for America’s poor, with financial services the primary culprit, something that also afflicts migrants sending money home (see article). Mr Martin at least has a bank account. Some 8% of American households—and nearly one in three whose income is less than $15,000 a year—do not (see chart). More than half of this group say banking is too expensive for them. Many cannot maintain the minimum balance necessary to avoid monthly fees; for others, the risk of being walloped with unexpected fees looms too large.

Doing without banks makes life costlier, but in a routine way. Cashing a pay cheque at a credit union or similar outlet typically costs 2-5% of the cheque’s value. The unbanked often end up paying two sets of fees—one to turn their pay cheque into cash, another to turn their cash into a money order—says Joe Valenti of the Centre for American Progress, a left-leaning think-tank. In 2008 the Brookings Institution, another think-tank, estimated that such fees can accumulate to $40,000 over the career of a full-time worker.

Pre-paid debit cards are growing in popularity as an alternative to bank accounts. The Mercator Advisory Group, a consultancy, estimates that deposits on such cards rose by 5% to $570 billion in 2014. Though receiving wages or benefits on pre-paid cards is cheaper than cashing cheques, such cards typically charge plenty of other fees.

Many states issue their own pre-paid cards to dispense welfare payments. As a result, those who do not live near the right bank lose out, either from ATM withdrawal charges or from a long trek to make a withdrawal. Other terms can rankle; in Indiana, welfare cards allow only one free ATM withdrawal a month. If claimants check their balance at a machine it costs 40 cents. (Kansas recently abandoned, at the last minute, a plan to limit cash withdrawals to $25 a day, which would have required many costly trips to the cashpoint.)

To access credit, the poor typically rely on high-cost payday lenders. In 2013 the median such loan was $350, lasted two weeks and carried a charge of $15 per $100 borrowed—an interest rate of 322% (a typical credit card charges 15%). Nearly half those who borrowed using payday loans did so more than ten times in 2013, with the median borrower paying $458 in fees. In 2014 nearly half of American households said they could not cover an unexpected $400 expense without borrowing or selling something; 2% said this would cause them to resort to payday lending.

Costly credit does not mix well with lumpy welfare payments. The earned-income tax credit (EITC), an income top-up for poor families, is paid annually, as part of a tax refund. The total refund can run into thousands of dollars, making it worth more than many families’ monthly pay cheque. Unsurprisingly, cash-strapped households seek to borrow against this windfall in advance. Regulators have recently nudged banks away from issuing high-cost short-term loans secured against imminent tax refunds. But it is still common to borrow to cover the cost of applying for the EITC. In 2014 almost 22m consumers used “refund anticipation cheques”, which offer a loan to pay the filing costs and collect repayment automatically when the refund arrives. These products typically cost between $25 and $60 for credit that lasts only a few weeks, according to Chi Chi Wu of the National Consumer Law Centre, an advocacy group.

How might financial services be made cheaper for the poor? Mr Valenti sees promise in mobile banking. But the poor are not yet well placed to benefit from the mobile revolution, in financial services or otherwise. Only half of those earning less than $30,000 per year own a smartphone, compared with 70% or more of those in higher income groups. Nearly half those who do manage it have had to temporarily cancel their service for financial reasons. That might itself be the result of disparate prices: those with poor credit ratings rely on pre-paid SIM cards, which unlike normal monthly contracts do not come with a hefty discount for the handset.

Low smartphone penetration in turn makes life more expensive in other ways. The unconnected do not benefit from the cheap communication, education, and even transport the app economy provides. A quarter of poor households do not use the internet at all, which makes seeking out low prices harder.

Price discrimination
Inflation has also squeezed the poor more in recent years. The prices of items which soak up much of their budgets—such as rent, food and energy—have risen faster than other goods and services. Falling oil and energy prices may be reversing that trend, though typically the poor own fewer cars, so benefit less from cheaper petrol.

From 2000 to 2013—the latest year for which figures are available—inflation has been higher for those in poverty for 139 of 168 months, according the Chicago Federal Reserve. As a result of this inflation premium, prices rose 3.2% more for the poor over this period. These figures may understate the disparity, because they do not include employer contributions to health insurance, which are widely thought to hold down pay cheques, and make up a bigger proportion of the total pay of the poor.

The high cost of being poor has two main implications. First, inequality is worse than income figures alone suggest. This is true even before non-financial disparities, such as the implications for health of living on a low income, are considered. Second, finding ways to reduce these costs, for instance by making it easier to claim the EITC without borrowing, or by changing the rules on overdraft fees (which at the moment are used to cross-subsidise banking for other customers), would be a cheap way of helping low earners—and bargains are rare for the poor.

[*michaelsean*]

The first part makes no sense. How is he risking being overdrawn? Deposit the money he uses to buy the money order in his bank account, then write the check.

[Benton]

(09-22-2016, 09:49 AM)michaelsean Wrote: The first part makes no sense.  How is he risking being overdrawn?  Deposit the money he uses to buy the money order in his bank account, then write the check.

With a check (not sure why they spelled it cheque and then used $) it doesn't make sense. It does with a debit card, though. Part of the reason I went back to cash or credit card and dumped my debit card was several years ago my last bank would put a hold on just about every purchase, which would sometimes cause me to look overdrawn and get a $25 overdraft fee.

When I got a $100 hold that ended up with me getting a false overdraft, then two more overdrafts based off the first false one, I got rid of that bank and went to just using cash.

[RICHMONDBENGAL_07]

(09-22-2016, 08:57 AM)GMDino Wrote: http://www.economist.com/news/united-states/21663262-why-low-income-americans-often-have-pay-more-its-expensive-be-poor

So I didn't read through all of it because I'm lazy, but I think I got the jist.  I have my child support payments set up through the state to come directly out of my pay CHECKS, no fees involved.  I have free checking with Chase... this guy needs to learn the system.

[JustWinBaby]

(09-22-2016, 02:30 PM)RICHMONDBENGAL_07 Wrote: So I didn't read through all of it because I'm lazy, but I think I got the jist.  I have my child support payments set up through the state to come directly out of my pay CHECKS, no fees involved.  I have free checking with Chase... this guy needs to learn the system.

Yes.  Article should have been titled "It's expensive to be stupid/lazy"

[Nebuchadnezzar]

I'm too poor to buy cheap, so I save for the best.

I never understood why anyone would pay $5.00 for a tape measure that will last a year over $20.00 for a tape measure that will last 20 years.

The same goes for everything. Take care of what you have and get the best when you need something new.

I know that's not what this article is about but the lesson here is, "I'm too poor to buy cheap"

EDIT: as to the article, banks are extortionist. Say your paycheck is from 5th 3rd but you bank at Cheviot Savings and Loan that 15 miles away and you need to get your paycheck cashed now. 5th 3rd makes you pay $5.00 to get your money out of their bank because you don't have an account there. That should be illegal.

[SunsetBengal]

Article was obviously written by a Brit. Anyway, I have been "poor" for most of my adult life, and I learned to make smarter decisions when it came to losing money on stupid fees and such. I'm not as poor as I used to be, but I still watch out for smarter ways to manage and save money.

[Mike M (the other one)]

(09-22-2016, 02:30 PM)RICHMONDBENGAL_07 Wrote: So I didn't read through all of it because I'm lazy, but I think I got the jist.  I have my child support payments set up through the state to come directly out of my pay CHECKS, no fees involved.  I have free checking with Chase... this guy needs to learn the system.

That's not fair, if the guy doesn't have a steady and stable job. It usually takes 2-4 weeks for a new employer to set up CS, in that meantime he's falling behind. If he's behind, then he can't claim the kid(s) on his year for taxes (if he has that agreement).

But yet, I think the banks are stupid for overcharging for all of these ATM Fees.
I can go online and get my balance for free, write an electronic check for free, transfer money for free.
But if I want to go to the Carnival, I have to stop and get out cash from an ATM, and if I use the wrong ATM I can pay up to $5 for one withdrawal.

All of these Fees are just underhanded ways the banks make money.

here's another example of how they can try to get you:
My Paycheck is auto deposited on Thursday night (because it was time stamped early on Thursday, you'd expect it to be processed first), but the bank will process the debits (from highest to lowest) before they process any of your credits.

So say you have a balance of $200
debits of $175, $20, $7, $2
They will ding you overdraft fees for the $7 and $2 dollar transactions, then deposit your paycheck $500, rather than ding you for the $175 debit or deposit your check first so that it's all covered.

Then in my case, I went to the bank, fought with them and got it all cleared up and my money put back in. But fighting with a bank takes time and you won't always get your money back.

[xxlt]

(09-22-2016, 02:30 PM)RICHMONDBENGAL_07 Wrote: So I didn't read through all of it because I'm lazy, but I think I got the jist.  I have my child support payments set up through the state to come directly out of my pay CHECKS, no fees involved.  I have free checking with Chase... this guy needs to learn the system.

Most free checking accounts require a minimum balance, which can be tough to maintain when you are living paycheck to paycheck/homeless/etc. If you can't keep the minimum balance you not only don't get free checking, you incur a ton of bullshit fees on top of a base fee for your checking account. Subject of OP is not as stupid as people think.

[*TheLeonardLeap*]

(09-22-2016, 02:30 PM)RICHMONDBENGAL_07 Wrote: So I didn't read through all of it because I'm lazy, but I think I got the jist.  I have my child support payments set up through the state to come directly out of my pay CHECKS, no fees involved.  I have free checking with Chase... this guy needs to learn the system.

(09-22-2016, 06:39 PM)JustWinBaby Wrote: Yes.  Article should have been titled "It's expensive to be stupid/lazy"

Pretty much. If you're a veteran, take your DD214 to the bank and the majority of them will give you an account with no maintenance fees or minimum amount. Same deal if you're active duty.

Outside of shopping around and talking to people to get free checking, has everyone forgotten how to keep a checkbook? Or just keep a physical account of your balance?

When I go to get money out of the ATM, I get a receipt of my balance and put it in my wallet. If I use my debit card to buy something, I will put that receipt in my wallet. The day's over? Take out the receipts, take out a pen, and calculate how much you have left in your account. Throw the shopping receipts away and put the ATM receipt back into your wallet. You now know exactly how much you have in your account without needing a smartphone or internet for online banking. Never have to worry about overdrawing again.

It's really that easy.

[RICHMONDBENGAL_07]

(09-28-2016, 12:12 PM)Mike M (the other one) Wrote: That's not fair, if the guy doesn't have a steady and stable job. It usually takes 2-4 weeks for a new employer to set up CS, in that meantime he's falling behind. If he's behind, then he can't claim the kid(s) on his year for taxes (if he has that agreement).

But yet, I think the banks are stupid for overcharging for all of these ATM Fees.
I can go online and get my balance for free, write an electronic check for free, transfer money for free.
But if I want to go to the Carnival, I have to stop and get out cash from an ATM, and if I use the wrong ATM I can pay up to $5 for one withdrawal.

All of these Fees are just underhanded ways the banks make money.

here's another example of how they can try to get you:
My Paycheck is auto deposited on Thursday night (because it was time stamped early on Thursday, you'd expect it to be processed first), but the bank will process the debits (from highest to lowest) before they process any of your credits.

So say you have a balance of $200
debits of $175, $20, $7, $2
They will ding you overdraft fees for the $7 and $2 dollar transactions, then deposit your paycheck $500, rather than ding you for the $175 debit or deposit your check first so that it's all covered.

Then in my case, I went to the bank, fought with them and got it all cleared up and my money put back in. But fighting with a bank takes time and you won't always get your money back.

(09-28-2016, 03:33 PM)xxlt Wrote: Most free checking accounts require a minimum balance, which can be tough to maintain when you are living paycheck to paycheck/homeless/etc. If you can't keep the minimum balance you not only don't get free checking, you incur a ton of bullshit fees on top of a base fee for your checking account. Subject of OP is not as stupid as people think.

I've never had a minimum balance with any bank I've used over the years,  you can usually find one with a little research.  Don't get me wrong I've certainly been screwed by banks with overdraft fees when I was younger.  I've lived paycheck to paycheck, but I also didn't manage my money well either then.  It's all about finding the right bank for you.  I do admit though that I've benefited while on active duty in the military or as vet, for example, I'm not charged for money orders.  However when I signed up with chase at the time because they were offering free checking with no min requirements of balances for anyone.  It wasn't until I'd been with them for a while and needed some money orders and found out they didn't charge for vets. I didn't even have to show papers, I'd already built a good relationship with the tellers and manager, which I highly suggest, they knew I was a vet through casual conversation, and told me Chase didn't charge vets for money orders and were shocked I was in there system as a vet. They changed it then and there.  They've helped me many times when things were tight.  I guess my point is build a relationship with your banking staff, they want to help you.  Also I guess do some research (that's not directed at either of you, just to those having trouble with their banks.  Don't get me wrong there are some shady banking facilities out there.

[Mike M (the other one)]

(09-29-2016, 02:33 AM)RICHMONDBENGAL_07 Wrote: I've never had a minimum balance with any bank I've used over the years,  you can usually find one with a little research.  Don't get me wrong I've certainly been screwed by banks with overdraft fees when I was younger.  I've lived paycheck to paycheck, but I also didn't manage my money well either then.  It's all about finding the right bank for you.  I do admit though that I've benefited while on active duty in the military or as vet, for example, I'm not charged for money orders.  However when I signed up with chase at the time because they were offering free checking with no min requirements of balances for anyone.  It wasn't until I'd been with them for a while and needed some money orders and found out they didn't charge for vets. I didn't even have to show papers, I'd already built a good relationship with the tellers and manager, which I highly suggest, they knew I was a vet through casual conversation, and told me Chase didn't charge vets for money orders and were shocked I was in there system as a vet. They changed it then and there.  They've helped me many times when things were tight.  I guess my point is build a relationship with your banking staff, they want to help you.  Also I guess do some research (that's not directed at either of you, just to those having trouble with their banks.  Don't get me wrong there are some shady banking facilities out there.

No problems here, I'm with a Credit Union now. No minimums and when I get charged for an ATM Fee, I bring the receipt in and they reimburse me. I discovered most of those banking things when I was younger and living paycheck to paycheck. So I got very picky about who I banked with. PNC is who killed me in my youth, 5/3rd is terrible as my son has found out. You can have the minimum in there, but they still take a monthly fee from you, so once it falls below the minimum from them taking monthly fees, you get dinged again and again each month. He left the $20 (min) in there, but after 2 months it was -$35, told him to pay it, close it and I opened him one at my Credit Union.

I also find it crazy that banks will take a small % of your paycheck if you opt to cash it there and you don't have an account or your employer doesn't have an account with them. Unfortunately, it's called Greed.

[*TheLeonardLeap*]

(09-29-2016, 02:33 AM)RICHMONDBENGAL_07 Wrote: I've never had a minimum balance with any bank I've used over the years,  you can usually find one with a little research.  Don't get me wrong I've certainly been screwed by banks with overdraft fees when I was younger.  I've lived paycheck to paycheck, but I also didn't manage my money well either then.  It's all about finding the right bank for you.  I do admit though that I've benefited while on active duty in the military or as vet, for example, I'm not charged for money orders.  However when I signed up with chase at the time because they were offering free checking with no min requirements of balances for anyone.  It wasn't until I'd been with them for a while and needed some money orders and found out they didn't charge for vets. I didn't even have to show papers, I'd already built a good relationship with the tellers and manager, which I highly suggest, they knew I was a vet through casual conversation, and told me Chase didn't charge vets for money orders and were shocked I was in there system as a vet. They changed it then and there.  They've helped me many times when things were tight.  I guess my point is build a relationship with your banking staff, they want to help you.  Also I guess do some research (that's not directed at either of you, just to those having trouble with their banks.  Don't get me wrong there are some shady banking facilities out there.

Yeah, you almost always get infinitely better results if you go into the bank in person and just have a friendly conversation on the topic. Compared to calling on the phone or going in with a predetermined hostile attitude.

Had my vet status on the account so no fees or anything, but somehow it got switched back to a normal account (probably greedy bank) and I noticed my balance wasn't quite as high as I thought it should be, but I knew it wasn't the people at the bank, they're just normal people. So I went in, talked to one about how I opened the account as a vet, I get my military disability checks auto deposited in the account, etc. They apologized, were happy to help, switched my account status back, and refunded the fees that I was wrongly charged.

It's amazing how much can get done with a conversation in person and a friendly smile. Apparently some people have just never learned that lesson, or forgotten it, though. Employees are people, too, and don't represent the corporation itself.

(09-29-2016, 11:58 AM)Mike M (the other one) Wrote: No problems here, I'm with a Credit Union now. No minimums and when I get charged for an ATM Fee, I bring the receipt in and they reimburse me. I discovered most of those banking things when I was younger and living paycheck to paycheck. So I got very picky about who I banked with. PNC is who killed me in my youth, 5/3rd is terrible as my son has found out. You can have the minimum in there, but they still take a monthly fee from you, so once it falls below the minimum from them taking monthly fees, you get dinged again and again each month. He left the $20 (min) in there, but after 2 months it was -$35, told him to pay it, close it and I opened him one at my Credit Union.

I also find it crazy that banks will take a small % of your paycheck if you opt to cash it there and you don't have an account or your employer doesn't have an account with them. Unfortunately, it's called Greed.

Yeah, there's some bad banks out there, but with a little bit of shopping around, it's not hard to find a good one. Just gotta remember that they are the ones who want your business and are often willing to match/beat any offer or deal others make. Same with shopping for a car.



- - - - - - - - -

This thread just reminds me that I hate large parts of the education system. They feel the need to teach everyone Algebra II, Pre-Calculus, and what some stuffy dead British poet had to say, but they don't teach money management, how to negotiate for a car, how to find the right bank, how to do a job interview, how to make a resume, how to change a car tire, how to go about getting your first apartment.

A whole lot of useless shit is taught (useless for most, not all I guess) and very very few practical things you will really need in your life.

[Mike M (the other one)]

(09-29-2016, 03:59 PM)TheLeonardLeap Wrote:  - - - - - - - -

This thread just reminds me that I hate large parts of the education system. They feel the need to teach everyone Algebra II, Pre-Calculus, and what some stuffy dead British poet had to say, but they don't teach money management, how to negotiate for a car, how to find the right bank, how to do a job interview, how to make a resume, how to change a car tire, how to go about getting your first apartment.

A whole lot of useless shit is taught (useless for most, not all I guess) and very very few practical things you will really need in your life.

Absolutely right, those are some of the things I would want if we ever managed to have an Education reform, along with basic cooking etc.

[Rotobeast]

I am lucky to be able to deal with a family owned bank.
Heck, I even threatened to put the bank president in a headlock.
They love me.


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