The High Price Of Poverty: How Financial Penalties Trap Low-Income Americans
The Role of Banking Access in Reducing Poverty, Why It's Expensive to Be Poor in America, Addressing Systemic Barriers to Economic Opportunity
For many of us, the financial system is a lifeline — offering tools for saving, investing and building wealth. But for millions of low-income Americans, it's often a trap, riddled with fees and predatory practices that make it incredibly expensive to simply survive. The data is clear: it is expensive to be poor.
GAITHERSBURG, MD FEB 12: A customer leaves a payday loan store on Frederick Rd. in Gaithersburg, ... More Maryland. The check cashing and payday loan services industry has thousands of branch offices all over the U.S. There are more payday lenders in the U.S. than McDonald's restaurants. There are various companies that offer payday loans for recurring expenses, unexpected expenses and paycheck cashing. The stores tend to be in urban and/or lower income areas. (Photo by Michael S. Williamson/The Washington Post via Getty Images)
Consider the unbanked. In my home state of Mississippi, a staggering 11.1% of residents don't have a bank account; with Louisiana at 8.1%, forcing residents of these states to rely on alternative financial services. The divide between economic levels is stark — nationally, 17% of adults earning below $25,000 are unbanked, compared to a mere 1% of those earning between $50,000 and $99,999. Without a bank account, people are vulnerable to predatory fees from payday lenders and lack access to basic financial tools like checking and retirement planning. Overdraft fees are another prime example. While regulations were passed to cap these fees at $5 instead of the typical $35, leaders of the House Financial Services Committee want to repeal the measure. Doing so will cost the 23 million households who have been hit with overdraft fees $5 billion a year.
The crisis of unbanked individuals is particularly dire in Southern states like Mississippi, which has the highest concentration of payday lenders per capita in the nation. These lenders, often located in low-income or non-white communities, offer short-term loans with sky-high interest rates. Mississippi borrowers can encounter annual percentage rates (APRs) up to an astounding 572%. For example, a two-week loan of $300 can accrue $329.25 in fees if renewed four times, totaling $629.25 to repay the principal and fees.
Even those with access to credit cards are feeling the pinch. U.S. credit card debt reached a record $1.17 trillion in the third quarter of last year, up from $770 billion in Q1 2021. This surge is partly due to higher interest rates and inflation, disproportionately affecting low-income individuals who may rely more on credit. Credit card defaults have risen to the highest level since 2010, with lenders writing off $46 billion in delinquent debt in the first nine months of 2024, a 50% increase from the previous year. This troubling trend highlights the financial strain on consumers, especially those who make the least, as they have the highest ratio of credit card debt to income.
The cycle of poverty, perpetuated by predatory financial practices, doesn't just harm individuals; it undermines the economic vitality of entire communities. When a significant portion of the population is trapped paying exorbitant fees and interest rates, their disposable income shrinks dramatically. This lack of spending power directly impacts local small businesses and entrepreneurs, who rely on consumer demand to survive. With less money circulating in the community, these businesses struggle to grow, innovate, and create jobs, ultimately hindering economic development and perpetuating a cycle of limited opportunity for both residents and business owners.
Addressing the systemic financial burdens on low-income Americans is not just about improving individual financial circumstances; it's an essential strategy for fostering a thriving and inclusive economy that benefits everyone.
The good news is that these problems are solvable. Here are a few policy changes that could make a real difference:
So far, solutions have primarily been state-based. But the SAFE Lending Act proposed last year in Congress would provide federal protections to consumers against payday lenders with a focus on combatting the rise in online payday loans, a market predicted to grow substantially in the coming years given how fast approvals are and a younger demographic utilizing them. Two of the SAFE Act's sponsors, Senator Jeff Merkley and Representative Suzanne Bonamici, hail from Oregon, one of the first states in the country to pass anti-paday lending legislation. Research found that in just four years, Oregon residents saved $165 million in loan fees thanks to the limits imposed by lawmakers. Meanwhile, new research shows that in the 30 states without payday lending limits, residents pay more than $2.4 billion in fees a year. This massive sum of money would be put to far better use as savings during these uncertain economic times, or spent at local merchants to bolster the community's economy.
It's time to recognize that financial hardship is not simply a matter of individual responsibility. It's a systemic issue that requires bold policy solutions. By leveling the playing field, we can create a system that ensures everyone has access to the benefits of financial planning.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Business Insider
30 minutes ago
- Business Insider
The Scared Stiff Economy
There's no such thing as the perfect time for a big decision. But when I reached out to Julia Coronado, the president of the economics consulting firm MacroPolicy Perspectives, to ask whether it's a good moment to take a significant financial risk, at least in the relative sense, her succinct email reply was telling: "Lol, short answer is no!" Given how complicated major transactions can be, there are plenty of caveats and counterexamples. On the whole, however, it is a particularly bad time for many major moves financially. Given everything that's going on right now, economists and personal finance gurus say that if you're treading water or feeling extra uneasy, you're not alone. " Uncertainty" is the word of the moment. America's tariff policies have shifted dozens of times since President Donald Trump took office. The stock market has been all over the place. The volatility emanating from the White House on immigration, government spending, and the federal workforce is palpable. There are rumblings of a recession and a return of high inflation. Consumer sentiment is in the basement. Across the economy, people feel like they're stuck in place. It's not a great time to change jobs, given the cooling labor market. The housing market isn't terrible — there's a growing amount of inventory out there — but if you're looking to buy now, you're probably lamenting having missed the dirt-cheap mortgage rates of a few years back. People thinking about retiring soon are doing some rethinking, given the current economic and financial market precarity. "It's not that when there's uncertainty or more uncertainty that people stop and don't act, don't make the big purchase, don't make the investment," says Claudia Sahm, the chief economist at New Century Advisors, an investment management firm. "It's often that the bar is higher." The issue at the moment is that while it may be appealing to adopt a wait-and-see approach, later is not synonymous with better. That's the calculation many Americans are facing now: Do I hold out on making a move now while things settle down, or do I take the risk that things will take a turn for the worse? "All we can do now is kind of read tea leaves on the future," says Chris Woods, a financial advisor who founded Silvis Financial. There's that old Wayne Gretzky quote about skating "to where the puck is going to be, not where it has been." The issue is that it's hard to guess where things are headed. When you're building up to a major financial leap, you typically sit on it until some level of certainty hits. That's especially true in scenarios where there are serious penalties for changing your mind. I mean, sure, you can offload that new car six months later, but you'd probably rather not. Jonathan Parker, a finance professor at MIT, tells me that a big spike in uncertainty will cause people to delay major spending such as upgrading to a new car, noting that "you might want that money for other purposes." When people make a big financial decision, such as buying a house, investing, or retiring, they want some level of buffer. They leave space for the possibility that some unexpected need will pop up — a medical emergency, an unexpected broken-down car or leaky roof, a lost job, a death in the family. Ideally, consumers don't want to just barely make their mortgage, wind up suddenly tapping the money they stowed away in their stock portfolio, or skimp on their day-to-day needs in retirement. When they take leaps, they want to leave a little side pot available to avoid an unforeseen circumstance. There's only so much a person can control — doing the best job possible at work doesn't insulate you from layoffs or guarantee your pay will increase with prices. Uncertainty makes that buffer harder to calculate and feel confident about having in the future. "In a time of great uncertainty, it's probably not the time you want to stretch with a purchase," Sahm says. This uncertainty may be headache-inducing for individuals trying to make up their minds, but what it might mean for the broader economy is tricky. Consumer spending is America's economic engine — personal expenditures account for about two-thirds of GDP. Ironically, people being worried is, in part, supporting the economy. When consumers are concerned about prices going up, they may pull forward big purchases to get them out of the way now before they get more expensive later. If you're nervous about your washing machine or car going kaput soon or are just looking to upgrade, it may feel prudent to replace them sooner rather than later in case prices go up. This year, consumer spending has jumped because of people trying to get ahead of tariffs. Crummy feelings about the future of the economy have actually been a good thing, spending-wise. "This is one thing that has helped consumer spending stay up while sentiment has really cratered," says Scott Baker, an associate finance professor at Northwestern University's Kellogg School of Management. At the same time, once people have made these anticipatory purchases or start to batten down the hatches, they could bring down the economy with them. If someone decides to put off renovating their kitchen, it means the contractor, the workers, and the store selling the materials miss out on money. "Just the fact that all of this is happening generates a wave of uncertainty," Parker says. "It's a significant drag on the economy, and it's not clear how big, but it certainly is a drag." Anyone who says they know what will happen next is lying. To be sure, there are some areas where sitting on your hands is usually the way to go, such as investing. When the going gets tough in the stock market, one of the worst things people can do is panic and cash out at the bottom. If someone had done that, say, in the wake of Trump's "Liberation Day," they'd probably regret it now. "Markets fluctuate all the time, they will go up and down," says Siavash Radpour, the associate director of the Retirement Equity Lab at The New School's Schwartz Center for Economic Policy Analysis. "Not doing anything is often a good policy for people who don't know what's going on." My colleagues at Business Insider recently did a series of stories attempting to answer whether it's a good time to make big life decisions. They looked at starting a business (the answer was yes), buying a home (if you must, but maybe rent), changing jobs (no), investing in stocks (go for it, within reason), buying a new car (hop to it), and retiring (hold off). The advice in the stories is all helpful and enlightening, but it can also go only so far. Every decision in life involves risks, and the truest answer to "Should I do X, Y, Z?" is, "It depends!" There's no denying we're in a time of heightened uncertainty. Anyone who says they know what will happen next is lying. And it really feels like things could break in any direction. While the safest advice is probably that you should snap up that new car before tariffs push up prices by thousands of dollars, Trump could declare the tariff thing over tomorrow, and all of a sudden you've overpaid for no reason. "The market this year has been driven less by fundamentals and just more by the different news we're getting from week to week on what's going on," Woods says. Maybe you do hold off on buying a house and come to regret it five years from now when prices are even higher. Or, you don't retire, and you miss out on time with your grandkids, or you're so risk-averse about jumping ship from your company that you miss out on your dream job. Those decisions are harder to make now with more factors in play. It's not just whether a recession is coming, but also what the AI revolution means for the structural future of the labor market. The question for retirees isn't just whether they've saved enough; it's also what might happen with public assistance programs they'd long planned around. "There is the risk of what's going to happen to Medicaid, what's going to happen to Social Security," Radpour says. "Health expenses are really scary in retirement." Starting a new business is always risky — statistically speaking, half of new businesses fail in five years. Loans for starting said business are more expensive and harder to come by. While it may be a decent time for a startup, no plan is foolproof. Many people who start a company during downturns and turmoil are doing so because they've lost their job or someone in their household has, not because they're jazzed about the future. "The jump is made for them, in some sense," Baker says. Still, if you see a market opportunity and want to make the jump, the idea that economy could get bad shouldn't preclude taking action. Thinking through all of the ambiguity and confusion isn't fun. Financial risks are always scary, whether big or small. Now it feels like the anxiety is extra heightened, given the context. For many people, it's going to feel like they're damned if they do, damned if they don't.
Boston Globe
an hour ago
- Boston Globe
DOGE gets failing grade
1: The DOGE numbers don't add up. Calculating how much DOGE has saved is difficult, but it's not at all hard to see that it didn't deliver what was promised. After Musk revised down his own early projection of DOGE savings from $2 trillion to $1 trillion, the department's website now estimates it has found more than $170 billion in taxpayer savings — Get The Gavel A weekly SCOTUS explainer newsletter by columnist Kimberly Atkins Stohr. Enter Email Sign Up But even that figure should be taken with a grain of salt, given that past examinations of DOGE's ' Advertisement DOGE moved to correct the error, as well as change the website to make such errors harder to find. But a Advertisement And though it may seem counterintuitive, cutting jobs doesn't actually translate to savings if it results in less productivity — if fewer IRS workers means less tax revenue is collected, for instance. An And even some Republican lawmakers have expressed unease with backing many DOGE-recommended cuts in a $9.4 billion legislative 'rescissions' package to claw back previously approved funding. House lawmakers 2: DOGE has roiled the job market. According to the latest jobs numbers, DOGE cuts contributed to a 50 percent spike in layoffs in May over the same period last year, Exacerbating the damage the firings alone have created is the chaotic way in which they were implemented. Federal agencies like the State Department, the Department of Housing and Urban Development, the Food and Drug Administration, National Weather Service, and the IRS are among those rushing to rehire terminated employees. That's because many of the estimated 135,000 DOGE-axed positions are for critical functions, like approving drugs and forecasting weather disasters. The layoffs' often-disorganized manner has confused dismissed workers and overtaxed remaining ones, many of whom have been asked to work overtime, volunteer to take on additional roles, or be pushed into new positions, Advertisement One former FDA worker That's not to mention the blow to communities in states where the largest percentages of federal workers are located, as well as government contractors that face secondhand profit and job losses due to the cuts. Outside of the greater Washington, D.C. region, which includes Virginia and Maryland, the hardest-hit states when it comes to canceled government contracts based on anti-DEI initiatives alone include Texas, California, North Carolina, Georgia, and Colorado — affecting politically red communities as well as blue. DOGE's harms know no partisanship. 3: The incalculable costs. On Monday a 'This was a breach of law and of trust,' wrote Judge Denise Cote in issuing the temporary injunction. 'Tens of millions of Americans depend on the Government to safeguard records that reveal their most private and sensitive affairs.' Whether some or all of DOGE's efforts to gain access to Americans' most sensitive information through agency databases will be declared unlawful is still uncertain. Challenges are still being litigated, and in a lawsuit involving DOGE access to Social Security data, the Advertisement According to Some DOGE staff have been granted temporary 'edit-access' to data, which means the information can be altered or deleted entirely within the federal system. That says nothing of the broader global impact, particularly through the dismantling of agencies like the United States Agency for International Development, which once provided critical life-saving humanitarian aid across the world. DOGE has The government claims that shuttering the agency saved Americans nearly $60 billion, or less than 1 percent of the federal budget. According to Advertisement Musk is already back to playing with his cars and rocket ships as the federal government picks up the pieces from his DOGE tantrum. But the global ripple effect is a reminder that some of the damage can't be undone. Editorials represent the views of the Boston Globe Editorial Board. Follow us
Business Insider
an hour ago
- Business Insider
I'm a boomer living on $4,996 monthly. My houseboat saves me money and keeps me young.
This as-told-to essay is based on a conversation with Cheryl Fellenz, 81, a retiree who lives on a houseboat off the coast of southern Maryland. She is one of thousands of older Americans who have shared their financial, career, and retirement stories with Business Insider. This interview has been edited for length and clarity. The idea of living on a houseboat felt like serendipity. I retired at 51 from my teaching career as a reading specialist. I had never been a boater or a boat captain or anything, but one day in 2009, a couple of friends were in my living room talking about this funky Washington DC boat yard down M Street. My spirit was attracted to that. When I drove down by the water and saw those boats at the marinas, I was like "oh, yeah, I'm doing this." Soon after, I sold my house, paid off the mortgage, bought my houseboat in cash, and then started my adventure. It was right after the market crash, so I sold my house — which I had been living in for 15 years — at a loss, but I was able to buy the houseboat for roughly $84,000. I knew the decision to move would cut my living expenses and I no longer have a mortgage. Lucky for me, if you have a pension, you don't even have to think about a 401(k). I don't have any savings, but my Social Security and teacher's pension add up to $4,996 a month, which is comfortable for me to live on. I keep an accounting book and I write down all my expenses — the fee to dock my houseboat is $275 a month, then I need to afford groceries and utilities. Praise God, I'm in excellent health. If something happens, I put it on my credit card, then I pay it off. I am disciplined with that. I'm paying toward my next financial goal: to be totally debt free. Boats can have more expenses than houses sometimes. After I got settled here, I had to pay several thousand dollars to fix the roof, air conditioner, and electricity. I paid for those repairs with my credit cards, and I'm hoping to have it down to zero by the end of this year. Once that's done, I'll have an extra $2,000 a month of spending money. I live an alternative lifestyle. I don't have children and I'm not married. But I have my routine: I go to the gym, I fill up a few gallons of fresh water at a natural spring off Route 488, I cook on my hot plate or grill, and I run my errands. I also teach a few local children how to read. I don't charge the families anything, but it gives me a sense of purpose. Even though I'm at this later stage of my life, I still can say, "oh, I have something to do today." I don't feel lonely. In my early years, I was the ultimate party girl. I loved to go to bars, listen to music, and go dancing. Now that I'm a little older, I wind it down a bit. I talk to friends, I go to social events held by my boating association, and I go once a week to a nearby jazz club. I would tell anyone planning to retire: be open to new experiences. Cultivate your imagination. Ask yourself: "Gee, where would I want to live? What's important to me?" The houseboat has absolutely been an adventure for me. When I moved in all those years ago, the DC-area had a giant snowstorm. It was like a foot above my knees. I had to shovel the dock, about the length of a football field, but I felt so proud of myself. I felt so alive. I literally think living here keeps me young. I'm happy with how my life is and the people in it. From my childhood, I've always loved nature. I see eagles, ospreys, gray and blue herons, and little turtles on the boat everyday. This is my dream come true.
