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  • 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 asbrokeorpoor

  • 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

  • public transportation supposed to get it home? On their lap on the bus?

  • Big food retailers--ones with enough purchasing power to offer low prices--are notorious for

  • avoiding poor neighborhoods, and people who live in these so-calledfood deserts

  • often lack the mobility to cruise around town bargain-hunting. Instead, they're stuck

  • with local convenience and corner stores, where prices are much higher. Or they rely

  • on fast food, which can seem cheap in comparison, but is actually more expensive than cooking

  • at home, to say nothing of the long-term health risks.

  • Rent can also be more expensive. Most landlords require a security deposit between $500 and

  • $1000 to move in--an impossible sum for people barely scraping by. In that case, your only

  • option (other than homelessness) might be a low-end extended stay motel, which typically

  • don't require deposits, but cost way more than an apartment in the long run. And they

  • often lack amenities like kitchen appliances and laundry that save apartment-dwellers time

  • and money.

  • They saytime is money,” and the less money you have, the more time you have to

  • spend on everyday tasks. Waiting at the bus stop, waiting at the laundromat, waiting at

  • overcrowded clinics and public offices. This leaves much less free time to take care of

  • one's family, pick up extra work, or strategize a way out of poverty.

  • It gets worse. Inflation, the general increase in prices, tends to hit things like food,

  • gas, and rent the hardest. The lower your income, the greater percentage of it goes

  • to those costs, so a poor person will see their year-over-year expenses go up at a higher

  • rate than a wealthy person.

  • All these pressures take a toll on one's psyche that only makes things worse. Imagine

  • having to constantly make tough decisions about where to spend your last few dollars:

  • Pay the water bill or buy food for dinner? Put gas in the car or see the doctor? This

  • relentless burning of mental energy leads to a deterioration in the quality of one's

  • judgement--a phenomenon psychologists calldecision fatigue.” It's why someone

  • might visit a payday lender when they know it's a bad idea--they're so exhausted

  • that they'll settle for a quick fix even if it will lead to more problems down the

  • road.

  • Closely related to decision fatigue is thescarcity trap,” which is our tendency

  • to fixate on the resources that we have the least of, to the point that we lose sight

  • of the big picture. Running low on diapers, for instance, can create a feeling of panic

  • that compels a poor mother to buy 6 months worth of Huggies--only to realize afterwards

  • that she didn't set aside enough money for rent.

  • Some might think that poor people just need to work harder and spend smarter. And while

  • it's true that improving your financial situation requires these things, it also requires

  • having at least a little bit of extra cash to move around, and access to decent spending

  • options.

  • If you can't choose where you shop, where you live, or where you bank, you become a

  • captive customer to predatory businesses. If you don't have any extra money to save,

  • invest, or budget, you can't make a financial plan. And when are you supposed to think about

  • tomorrow when you're constantly putting out today's fires?

  • Next time you describe yourself asbroke,” remember that having just a little bit of

  • wiggle-room is infinitely better than none at all. It can make all the difference if

  • you're trying to improve your financial situation.

  • So if you do have that wiggle-room, be thankful and don't waste it!

  • And that's our two cents!

  • Missing one payment can quickly spiral into a pit of debt.

  • Has this ever happened to you and were you able to escape it?

  • Share your story in the comments.

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

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B1 INT US poor financial expensive poor people fee wealthy

Why It's More Expensive To Be Poor

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    Capalu Yang   posted on 2020/05/16
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