Reflecting on 25 Years of the Kids Count Data Book: The High Cost of Being Poor

Posted April 22, 2015, By the Annie E. Casey Foundation

Blog highcostofbeingpoorlongversion 2015

A short­er ver­sion of this sto­ry is available

A recent New York Times series chron­i­cles the boom in sub­prime auto lend­ing to peo­ple with poor cred­it or low cred­it who des­per­ate­ly need cars to get to work. It explains how these loans set terms and fees that become impos­si­ble to sus­tain, hurt­ing low-income con­sumers who can least afford it. MSNBC aired a seg­ment on the same top­ic recent­ly under the tagline, the high cost of being poor.”

A dozen years ago, the Annie E. Casey Foun­da­tion pop­u­lar­ized that phrase in a sweep­ing account of the inflat­ed charges peo­ple in poor com­mu­ni­ties pay for every­thing from cars to gro­ceries. The High Cost of Being Poor: Anoth­er Per­spec­tive on Help­ing Low-Income Fam­i­lies Get By and Get Ahead” was pub­lished as part of the 2003 KIDS COUNT Data Book. Draw­ing on new­ly com­mis­sioned research from the Brook­ings Insti­tu­tion, it tal­lied dis­par­i­ties in costs such as food, trans­porta­tion, health care, check cash­ing and oth­er finan­cial transactions.

The report also described how preda­to­ry sub­prime mort­gage lend­ing put work­ing poor fam­i­lies at risk of finan­cial ruin, dash­ing dreams of legit­i­mate home own­er­ship and desta­bi­liz­ing the economy.

Over­all, the amount of mon­ey lost to low-income fam­i­lies and to com­mu­ni­ties them­selves as a result of income-strip­ping finan­cial ser­vices and preda­to­ry prac­tices is enor­mous,” stat­ed the essay.

The 2008 Wall Street cri­sis shed new light on this issue and fueled reforms, and oth­er trends cit­ed in the essay— such as lack of access to main­stream banks and healthy food out­lets in poor com­mu­ni­ties — have long had their cham­pi­ons. But before Casey’s 2003 report, no one had cat­e­go­rized these con­cerns as part of the same sys­temic prob­lem or brand­ed it as the high cost of being poor.”

That catch phrase, and the hard data in the report, ignit­ed a new con­ver­sa­tion about the sys­tem­at­ic way that low- income peo­ple and peo­ple of col­or were being tak­en advan­tage of,” notes Bon­nie Howard, direc­tor of nation­al part­ner­ships at the foun­da­tion. It had wow’ power.”

This was a rel­a­tive­ly straight­for­ward obser­va­tion, based on a wide range of evi­dence, that low-income fam­i­lies were pay­ing more pro­por­tion­ate­ly and in some cas­es more absolute­ly for vir­tu­al­ly every­thing they need­ed,” notes Ralph Smith, Casey senior vice pres­i­dent and man­ag­ing direc­tor of the Cam­paign for Grade-Lev­el Read­ing. This was an over­looked and under­ap­pre­ci­at­ed effect of pover­ty, con­trib­u­tor to pover­ty and obsta­cle to get­ting out of poverty.” 

Progress since 2003 has been sig­nif­i­cant on sev­er­al fronts. The fore­clo­sure cri­sis prompt­ed new laws and poli­cies gov­ern­ing the way finan­cial insti­tu­tions do busi­ness and safe­guards for con­sumers, includ­ing the Cred­it Card Account­abil­i­ty Respon­si­bil­i­ty and Dis­clo­sure Act of 2009, the Dodd-Frank Wall Street Reform and Con­sumer Pro­tec­tion Act of 2010, and the cre­ation of the Con­sumer Finan­cial Pro­tec­tion Bureau (CFPB).

Today, there is an entire field devot­ed to finan­cial sta­bil­i­ty and how to pro­vide low-cost finan­cial ser­vices to those who would oth­er­wise use rent-to-own, pawn­shops, pay­day lend­ing, and oth­er high-priced ser­vices,” notes Bead­sie Woo, a senior asso­ciate in Casey’s Cen­ter for Com­mu­ni­ty and Eco­nom­ic Oppor­tu­ni­ty. There is a grow­ing and dynam­ic indus­try devot­ed to the needs of those who don’t use or can’t afford main­stream finan­cial services.”

In Feb­ru­ary 2015, Amer­i­can Banker pub­lished a Finan­cial Inclu­sion Issue,” high­light­ing strate­gies banks are using to pur­sue the 28 per­cent of con­sumers who are tak­ing their busi­ness elsewhere.”

The fact that the major trade pub­li­ca­tion for the finan­cial ser­vices indus­try has done an issue on finan­cial inclu­sion is an incred­i­ble sign of the impact that a decade’s work on this issue has made,” notes Rachel Schnei­der, senior vice pres­i­dent of the Cen­ter for Finan­cial Ser­vices Inno­va­tion.

Advo­ca­cy by umbrel­la groups such as Amer­i­cans for Finan­cial Reform have played a major role.

When the fore­clo­sure cri­sis occurred, we and oth­er groups that Casey sup­port­ed were in a posi­tion to push for reform,” notes Chi Chi Wu, a staff attor­ney with the Nation­al Con­sumer Law Cen­ter (NCLC). Casey’s sup­port enabled us to lay the ground­work and build the capac­i­ty to act when the tim­ing was right.”
 
The 2003 essay has con­tin­ued to influ­ence us today in the work we do with leg­is­la­tors,” notes Mary Fairchild, a senior fel­low at the Nation­al Con­fer­ence of State Leg­is­la­tures. With Casey sup­port, NCSL has held an annu­al meet­ing on oppor­tu­ni­ties for work­ing fam­i­lies since 2002. Ses­sions on the high cost of being poor have inspired leg­is­la­tors to look at how poli­cies could be strength­ened,” says Fairchild.

After hear­ing Ralph Smith speak on this top­ic in 2002, Penn­syl­va­nia Rep­re­sen­ta­tive Dwight Evans led a statewide effort to launch the Fresh Food Financ­ing Ini­tia­tive, a pub­lic-pri­vate part­ner­ship that pro­vides grants and loans for super­mar­ket devel­op­ment in under­served areas. The effort has improved access to fresh foods for more than half a mil­lion peo­ple and gen­er­at­ed some 5,000 jobs. This approach helped inspire the Healthy Food Financ­ing Ini­tia­tive, a fed­er­al part­ner­ship that helps finance gro­cery stores, small retail­ers, cor­ner stores, and farm­ers’ mar­kets sell­ing healthy food in under­served areas.

While car pur­chas­ing is still one of the least reg­u­lat­ed areas cit­ed in the report, the CFPB has estab­lished some lim­its on the use of markups, and a coali­tion of diverse groups called Work­ing Cars for Work­ing Fam­i­lies helps con­nect low-wage work­ers to non­prof­its that help pro­vide low-inter­est loans and matched sav­ings for cars. There is a col­lec­tive goal to make sure low-income fam­i­lies can get and keep afford­able, reli­able cars on good terms,” says John Van Alst, a staff attor­ney at NCLC and project direc­tor for Work­ing Cars for Work­ing Fam­i­lies

Stem­ming every scam that tar­gets vul­ner­a­ble con­sumers is impos­si­ble. For exam­ple, no soon­er had rapid tax refund antic­i­pa­tion loans been banned, when a thin­ly veiled sub­sti­tute, refund antic­i­pa­tion checks, sur­faced. Both prac­tices charge con­sumers hefty inter­est rates or high fees to get their tax refunds a few days earlier.

One of the biggest things we focus on now is how to increase access to the kinds of prod­ucts and ser­vices that can help the fam­i­lies we serve become finan­cial­ly sta­ble and increase their bal­ance sheet rather than deplete it,” notes Bead­sie Woo. 

Casey has long joined with oth­er orga­ni­za­tions to com­bat preda­to­ry finan­cial prac­tices and sup­port alter­na­tive low-cost ser­vices and bank­ing options. A huge body of work cen­tered on expand­ing access to the Earned Income Tax Cred­it for low-income fam­i­lies, sup­port­ing free or low-cost tax prepa­ra­tion by trained vol­un­teers, and help­ing fam­i­lies get on a path toward sav­ing and build­ing assets. The Foun­da­tion con­tin­ues to lend sup­port for this work to the Bal­ti­more CASH (Cre­at­ing Sav­ings, Assets, and Hope) and Mary­land CASH campaigns.

Oth­er Foun­da­tion invest­ments have included: 

  • Pro­vid­ing finan­cial coach­es that work close­ly with fam­i­lies to help them nav­i­gate and over­come obsta­cles in meet­ing their finan­cial goals;
  • Sup­port­ing efforts to encour­age sav­ing by enabling tax­pay­ers to split their refunds between check­ing and sav­ings accounts, includ­ing sav­ings bonds;
  • Invest­ing in a pub­lic-pri­vate part­ner­ship to imbed prompts into tax soft­ware that help direct low-income tax­pay­ers toward sav­ings options; and
  • Rais­ing aware­ness about the high fees immi­grants were pay­ing to send mon­ey home to their fam­i­lies and pro­mot­ing reforms to reduce these costs.

Casey has been at the fore­front of under­stand­ing that high qual­i­ty finan­cial ser­vices are rel­e­vant to fam­i­ly well-being,” says Rachel Schnei­der, senior vice pres­i­dent of the Cen­ter for Finan­cial Ser­vices Inno­va­tion. Because of that, we have been able to shift the dia­logue to what finan­cial health looks like and how to achieve it, and from prod­uct-by-prod­uct improve­ment to sys­temic improvement.”

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