Why It's More Expensive To Be Poor

Most people are not super wealthy, but we all have an idea what it might be like to be a wealthy

person. We watch them on TV, we follow them on Instagram, we read their blogs and autobiographies.

Unfortunately, that awareness of how the other half lives doesn’t happen much in the other

direction. Though many of us have probably described ourselves as “broke” or “poor”

at one point or another, very few have an understanding of what real poverty feels like.

And it’s not just a matter of having less money. Once you get below a certain threshold,

a whole new set of rules apply that actually make day-to-day life more expensive. If you’ve

never struggled with real poverty, you might not be aware of the many hidden costs and

financial traps that conspire to keep poor people poor.

It’s very hard to make your way through modern life without access to basic financial

services like checking accounts, ATMs and personal checks. But the less money you have,

the more these things will cost you. That’s because banks make their profits by accruing

interest on your money. So if your account balance is too low, usually under $1,500,

they won’t consider you a profitable client anymore, and they’ll make you pay for their

basic services in the form of a monthly fee.

And heaven help you if you go below zero--each overdraft incurs a charge of about $35, and

many banks will deliberately reorder your transactions for the day--from biggest to

smallest--to drive you into the red more quickly and rack up as many overdraft fees as possible.

If a bank is willing to extend you credit at all, the terms will be much less favorable

than for someone with a rosier financial history. You’ll pay more money in interest every

month, and any late payments means more penalties and fees.

Even cash can be more expensive if you don’t have much of it. If you withdraw $100 from

an out-of-network ATM, that $3 fee equates to a 3% service charge. But if you can only

afford to take out 20 bucks at a time, you’re essentially paying a 15% charge to access

your own money.

Taken together, this means that a poor person might end up paying hundreds or thousands

of dollars a year for services that wealthier people virtually enjoy for free. It’s no

wonder, then, that a lot of low-income people avoid banks altogether--but even that comes

at a steep price. Cashing a paycheck without a bank account costs money. Buying a money

order to pay your electric bill costs money. And if that bill is due in just a couple days?

Well, you can either get hit with a late fee, or fedex it--an extra expense that someone

with a debit card and an internet connection never has to worry about.

If you think that dealing with credit card debt is bad, thank your lucky stars you’ve

never dealt with a payday or car title lender. These businesses are often the only recourse

for people without credit cards, and their interest rates reach upwards of 800% annually!

Not only does it cost more to borrow and spend money, but what you spend it on is often more

expensive! If you have to feed a family on a tight budget, buying in bulk at a supermarket

is usually the best option--but one not available to many poor people. Even if they had the

cash on hand to buy weeks’ worth of food in one trip, how is someone who depends on