Beating Broke

Personal Finance from the Broke Perspective

5 Hidden Barriers That Quietly Punish the Working Poor

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Why the working poor are stuck in poverty
Image Source: Pexels

In 2020, 37.2 million people, or 11.4 percent of the nation’s population, lived below the poverty line, according to the U.S. Census Bureau. With many Americans considered the working poor, it’s important to consider why so many can’t get out of poverty. The reality is that it is extremely difficult to escape the cycle when the system is inequitable.

The working poor face a number of challenges that often go unnoticed or are misunderstood. These barriers aren’t always immediately obvious, but they can have a profound impact on their ability to break free from poverty. Here are five hidden barriers that quietly punish the working poor.

1. Lack of Affordable Childcare

Many working parents in low-income households face the challenge of finding affordable, high-quality childcare. For example, the cost of childcare in 2022 for one child ranged from $6,552 to $15,600. This high cost isn’t feasible for many American families. In addition, many parents living in poverty don’t have a strong support system of family or friends that can help watch their children. Without this support, parents may be forced to choose between working to make ends meet or staying home to care for their children. Plus, if childcare is unreliable, parents may get their hours cut or lose their jobs altogether.

2. Inaccessible Transportation

Transportation is another hidden barrier that can trap people in poverty. Many low-income workers rely on public transportation, which is not available in all areas. In other cities, public transit is antiquated, and it’s hard to get from place to place on time. Workers may spend hours on public transit trying to get to their jobs.

For those who own a car, the costs of maintenance, fuel, registration, and insurance can quickly add up, leaving little room for savings. In addition, if an individual has their license revoked because they couldn’t pay for a driver’s license renewal, insurance premiums, car inspections, or registration renewal, they often are left high and dry with nothing to fall back on. If someone who is poor can’t pay their car payments, their car can also get repossessed. All of these issues tend to be overwhelming and hard to dig out of. Without reliable transportation, workers can lose jobs or miss out on better-paying opportunities that are located farther away.

3. Inadequate or No Health Insurance

Even though many working poor individuals may be employed full-time, they often lack access to affordable healthcare. Some jobs don’t offer health insurance, or the premiums and out-of-pocket costs are unaffordable for low-income individuals. Plus, policies may have high deductibles that workers can’t even afford. This means that minor health issues are often ignored and can lead to serious conditions. Workers may delay seeking treatment until the problem becomes catastrophic. Medical debt can be crushing and hard to pay off. Ultimately, this can lead to bankruptcy or financial ruin.

4. Debt Traps

Many working poor individuals turn to payday loans or high-interest credit cards to make ends meet. These financial products often come with astronomical fees and interest rates, which make it nearly impossible for borrowers to pay off their debt. Plus, these lenders are very predatory and are illegal in some states. If individuals don’t pay back these loans on time, they can owe interest of as much as 300%-400%. This cycle of borrowing and never-ending debt can leave workers stuck in poverty for years, as they pay off loans that barely cover the interest, let alone the principal.

In addition to predatory loans, it can be extremely hard to pay off high-interest credit cards. Missed payments and accounts in collections can destroy your credit for years to come. The working poor often can’t afford more than the minimum payments, and if that, then interest continues to compound.

5. Lack of Access to Assistance Programs

In some cases, some of the people who need assistance the most don’t qualify. For example, you may not qualify for programs, like Supplemental Nutrition Assistance Program (SNAP), if you don’t have a permanent address. Without assistance, the working poor often have to choose between feeding their families, paying bills, or other essentials. This can continue the cycle of poverty. When the poor need it most, there is often nowhere to turn.

Escaping Barriers for the Working Poor

These barriers don’t just affect an individual’s ability to succeed; they also create a cycle of poverty that’s difficult to escape. Solving these issues would require coordinated policy changes, community support, and a reevaluation of how society treats its most vulnerable workers.

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The Hidden Costs of Poverty: How Being Poor Can Actually Cost More

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In a world where wealth often leads to more opportunities, the paradox of poverty unveils a harsh reality: being poor is expensive. For many, the lack of financial resources translates into higher costs on nearly every front. This article delves into the multifaceted ways in which poverty imposes additional economic burdens, revealing the hidden costs of poverty. By understanding these challenges, we can foster a more empathetic approach to addressing economic disparities and support initiatives aimed at breaking the cycle.

1. Higher Interest Rates and Credit Costs

Individuals who are living in poverty often have a lower credit score. This, in turn, can result in higher interest rates on loans and credit cards. As a result, even routine tasks like renting an apartment or purchasing a car can become more costly. Moreover, low-income earners tend to pay more for financial services, including basic checking accounts and credit cards. Those who are financially vulnerable are often the target of predatory lending practices, such as payday loans, which charge exorbitant interest rates.

2. Increased Health Care Expenses

Low-income families frequently lack access to affordable health insurance. This leads to higher out-of-pocket costs for medical care. Preventative care is less accessible, causing reliance on more expensive emergency services. Poor nutrition and living conditions also lead to health issues that require medical attention, adding to the financial strain. The cycle of poor health exacerbating poverty is well-documented but often overlooked hidden costs of poverty.

3. Less Access to Affordable Housing

Affordable housing is becoming increasingly inaccessible for low-income earners. This is forcing them to live in substandard living conditions. Renting in safe neighborhoods often requires a disproportionate amount of their budget. This leaves them with limited options in neighborhoods with higher crime rates and poor educational opportunities. Moreover, the high cost of moving and rental deposits can be a barrier to mobility, preventing them from improving their living conditions.

4. Higher Costs for Basic Utilities

Utilities like electricity, heating, and water often cost more in poorer neighborhoods due to older, less efficient infrastructure. Additionally, lower incomes mean fewer opportunities to invest in energy-saving measures like insulation or efficient appliances. This means higher monthly utility bills. The inability to pay utilities on time can also result in late fees, further increasing costs.

5. Transportation Barriers

Impoverished areas have limited public transportation, leading to a greater reliance on personal vehicles. Low-income families often own older vehicles that require costly maintenance, which perpetuates financial struggles. The lack of affordable transportation options can limit access to better jobs and education, perpetuating the cycle of poverty. To break this cycle, it is crucial to invest in accessible and affordable transportation options for all individuals, regardless of their income level.

6. Food Insecurity and Higher Grocery Bills

Low-income areas, often called food deserts, lack access to affordable, healthy food options. This forces residents to shop at convenience stores. Prices there are typically higher and options are less healthy. The added cost of traveling to better supermarkets further increases the overall food budget, affecting financial stability.

7. The Expense of Poor Quality Goods

One of the hidden costs of poverty is the impact it has on the quality of goods that people can afford. Those who are poor often have to buy cheaper, lower-quality goods that tend to wear out or break down more quickly, resulting in more frequent replacements. This applies to everything from clothing to appliances. Moreover, people living in poverty often do not have the luxury of buying in bulk or taking advantage of sales due to their immediate cash needs, which further exacerbates this issue.

8. Educational Barriers and Costs

Education is a pathway out of poverty, but it comes with its own set of barriers. Costs for materials, uniforms, and extracurricular activities can be prohibitive. Public schools in low-income areas are often under-resourced, affecting the quality of education received. This limits future earning potential, continuing the cycle of poverty.

9. Higher Fees and Fines

Individuals with low incomes often find themselves dealing with higher fees and fines. This includes fees from banking penalties to legal infractions. There are many causes, such as a lack of access to affordable financial services or a limited understanding of legal rights and procedures. Unfortunately, the inability to pay fines promptly often leads to additional fees or legal complications. This can further increase the financial burden and create a cycle of debt that is difficult to break out of.

10. The Psychological Cost of Poverty

The psychological impact of financial instability can be significant due to the associated stress and anxiety. This can lead to making irrational decisions, such as opting for high-cost borrowing. Unfortunately, discussions about financial inequality often overlook the immense mental health costs of poverty. Moreover, mental health issues can add to the economic burden faced by those already struggling to make ends meet.

Support Economic Equality

The costs of poverty are not just numbers; they represent real struggles for millions. By supporting policies and initiatives that promote economic equality, we can help alleviate these burdens. Engage with local organizations, advocate for policy changes, and educate others about the hidden costs of being poor. We can all make a difference.

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Is the Living Wage Realistic?

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I recently found an interesting calculator (Via Lifehacker, via MIT), called the Living Wage Calculator.  The smart folks over at MIT put it together to”provide a minimum estimate of the cost of living for low wage families.” Normally, when I see one of these calculators, I try it once, scoff lightly, then move on to something far more useful with my day.  This calculator is a bit different from some other ones I’ve seen in that it actually gets pretty localized.  Others tend to use a generalization like “urban” or “suburban” and leave it at that.  The fault there is that the living wage in an urban setting like Los Angeles is going to be very different from a living wage in the urban setting of a city like Fargo.

The MIT living wage calculator gets localized down to the county you live in, and then goes a bit further and can go right down to the city that you live in in some cases.  I gave it a run based on my county, and then based on my city.  Not surprisingly, I got the same number in both cases.  The city I live in is both the county seat, and the largest city in the county.  I suppose it’s possible that the numbers could vary a bit at the two levels, but I don’t think it would be too much in any case.

A Living Wage: Example locations.

Living WageTo compare how the results fare based on your actual location, I ran it for a few different locales.  First, using the example above, for Los Angeles city.  In all cases, I used the 2 adult, 3 children number.  For Los Angeles, the calculator returned an hourly wage of $27.97 which translates to just a hair under $58,200.  (using $/hr * 2080)  For Fargo, the calculator returned an hourly wage of $20.56 which translates to about $42,800 a year.  To be honest, I was a little surprised by the small difference between the two.  Not that almost $16,000 is a small amount, but considering the difference in the size of the two cities, I really expected the living wage to much more significantly different.

For a second example, I compared Fargo against the city that I live in.  The numbers for Fargo are above.  For my city, the calculator returned an hourly wage of $19.20 which translates to about $40,000.  This difference was a bit more expected.  The two cities are only a couple of hours away, and their economic differences are pretty minimal.  I also got curious and looked up what it would spit out for a living wage for New York City (Queens County).  There, it estimates the living wage at $26.12 an hour, or about $54,300 a year.

I found it somewhat interesting to dig into how they were calculating the living wage.  They’ve estimated some of the expenses for an average family of a certain number of adults and possible children.  Based on our own expenses, I think it’s safe to say that some of them are a little low.  They’ve also assumed that any 2 adult family with children is a one-income family with no childcare expenses.  In fact, I’m not so sure that they aren’t saying that a 2 adult household with no children would be a one-income family.

Given all of that, it was a bit reassuring to know that our family makes more than what they’re assuming is a living wage for our area.  However, that’s with two incomes.    Which also means that we’re spending plenty of extra on child care.  If I use their numbers for expenses for 2 children and childcare, then add it to their 2 adult, 2 children number the resulting number is not that far from what we’re really making.  There’s still a bit left over above that amount, but it’s a bit of a reality check too.  Time to find some ways to increase income!

A Living Wage: Is it Realistic?

All the playing around brings a question to mind.  Is the living wage realistic?  It’s important, I think, to realize that the living wage is meant as an indicator of the amount of income that is necessary to assure that a family can pay for the bare necessities of “living”. Keeping that in mine, it might be realistic.  But, one of the key things I don’t see in the expenses categories is a line for any sort of debt servicing.  Which means they’re assuming that you’re renting a house or apartment, and that you don’t have any other debts.  And we all know how realistic that assumption is.  Or not.  I think, for this to be truly realistic, it’s got to assume that the family will be dual-income.  It’s also got to assume that at least one of the two adults will have some student loan debt.  More likely, both.  And it’s got to assume that there’s going to be some other debts that will need servicing.  Then it might border on a true living wage.  Otherwise, it’s just another way of saying poverty line.

Go and give the calculator a spin.  How close to the number are you?  Are you so far from it that it’s scoff worthy?  Or is it time for you to find a way to increase your income too? Do you think that the living wage is realistic?