Why the Poor Stay Poor

 

1100 words

I have often heard people who ridicule the poor, blaming them for their poverty. They consider the poor to be wasteful and foolish. They imagine that if they themselves were poor, they would be able to lift themselves quickly out of poverty. These people have usually never, themselves, been poor. I have been through hard times before, but I’ve always had the knowledge that my education, family, experience and connections would bail me out if I needed them.

In this article I will explore some of the obstacles that stand between poor people and the possibility of improving their financial positions.

Higher Costs

  • Without ready cash, poor people cannot afford to make economies of scale through bulk buying. Many of them lack the connections to buy wholesale. They mostly live in the inner cities, distant suburbs or country towns so, lacking transport they cannot get to the big discount stores. So they mostly buy from small local shops. Because these shops are small, they also cannot buy in bulk and rely on middle men and wholesalers.
  • Cheap food is cheap because the quality is poor. This leads to bad health, in the long run, which will affect income.
  • Stress causes the poor to seek relief through smoking, drinking and drug taking. The pub is an important source of entertainment.
  • One of the few ways to escape poverty is by winning the lottery. The poor are the biggest buyers of lottery tickets, although the odds of winning are extremely low and many lose their winnings within a few years (for reasons I will outline in a future article).
  • Athletics is often touted as another ‘easy’ way to escape poverty yet many professional athletes have little to show for their short careers other than permanent injuries. Many give up the most productive years of their lives in pursuit of this dream without even a degree to show for it.
    Cheap clothes and shoes don’t last long and don’t look good.
    The poor cannot take advantage of prepayment discounts, they cannot store food or fuel when it is cheap.

Banking

  • The poor are excluded from using the better banks. Sometimes this is because there are financial hurdles for opening accounts or they simply feel uncomfortable being in the intimidatingly luxurious environment. When they do have access to banking facilities, they may be excluded from the best accounts because they do not have sufficient funds or cashflow. I have often jumped queues because the bank staff knew me or perceived that I was a better customer than the others standing in line.
  • Lack of savings and poor credit history means higher interest rates on loans.
  • Without sufficient funds the poor cannot buy things outright and rely on hire purchase contracts by which they end up paying back the amount of the loan several times over.
  • If they choose not to have a bank account they cannot cash checks except at shops which may charge 10% for accepting the risk.
  • Late payments bring fines, hidden charges and damage to credit ratings. Default on a hire purchase may cause the product to be withdrawn, wasting previous payments.

Crime and security

  • Poor neighborhoods have the highest crime rates. Poor people are more likely to be victims of robbery. The possibility of robbery discourages savings.
  • Local businesses must pay more to install security and they must pay higher rates for insurance. These costs are passed to their customers.

Poor quality housing

  • Renting is cheap in the short term but expensive in the long run.
  • Bad insulation means higher cooling and heating costs.
  • Not having a washing machine means relying on the laundromat, which is more expensive over time.
  • Cheap cars are more likely to break down and use more fuel.
  • Living far from work means expensive parking fees or long bus trips. Commuting eats up precious time.
  • Internet shopping is often not available to them or is impractical.

Lack of information.

  • A low level of education and lack of access to media makes people more accepting of bad ideas and causes good ideas to be invisible.
  • Their social networks don’t include many people who can help them solve their problems.
  • Inability to read a contract makes them easy victims of banks.
  • Unfamiliarity with business norms makes them easy victims of conmen.

The poor keep each other poor.
The people you spend the most time with have the biggest influence on how you think. Poor people generally adopt what is called the “ghetto mentality.” This is a mindset where they give up hopes of improving themselves and waste money on goods which they know are overpriced, simply to fit in with their peers. Their friends and family despise them if they show signs of improving themselves.

The Government keeps the poor poor.
This is not a policy, no politician wants to see the people suffer. It is generally the result of good intentions having bad results. Through tax, welfare and inflation the government keeps the poor alive but still poor.

  • Most countries have a ‘progressive’ income tax system which makes you pay more if you earn more. This is a disincentive for poor people to earn more. Wealthy people use clever accountants to help them avoid paying these higher tax rates.
  • Government welfare programs, such as food assistance, cut out at the very time when people start to improve their position by getting low paid jobs.
  • Laws which are intended to protect the public from a small number of rogue businessmen make it difficult for small and micro businesses to make a living. Meanwhile, shady operators find loopholes or simply fail to operate in a legal manner.
  • Savings held in cash for too long (whether under the bed or in a savings account) lose their value because of inflation (inflation is created by the government through setting of interest rates and creation of money). Alternatively, when the inflation rate is low, elderly people who rely on their savings for income become impoverished as they earn less.
  • Public health services are generally inferior quality and there are long waiting lists for treatment of illnesses which are not immediately life threatening. A person’s health can decline rapidly while waiting for treatment.
  • If the police find a poor person carrying a large amount of cash, a drug trafficking conviction is likely. In some places police are able to confiscate property without bringing formal charges. They may threaten extreme penalties if their target tries to resist and the state-provided defense counsel will always advise a deal where the defendant loses their property.

In these thousand words I’ve outlined the most common obstacles faced by poor people who want to improve their lives. It is not my intention to make it seem like a hopeless task for a poor person to achieve financial freedom. By knowing the systemic problems, we are better able to chart a course which overcomes or sidesteps them. There are ways to find cheap, nutritious food, ways of saving which fall below the radar of government and charities, methods of getting the information to rise above the crowd. In the “frugal lifestyle” section and other parts of this site there are many suggestions for overcoming these and other problems.

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