Being poor is a never-ending cycle. When poor people don’t have enough money to pay for things, they often fall into a terrible trap: They have to pay for even more things because they can’t afford the original item or service.
This is often referred to as a poor tax. Poor Tax refers to the situation where people with lower incomes, particularly those living in low-income areas, incur higher expenses, paying more in terms of money and time, health, and opportunity costs.
Here are some examples of services that poor people have to pay more for because they are poor.
High-Fees Checking Accounts
Lower-income individuals struggle to maintain enough balance in their checking accounts to reduce monthly fees. That means they can spend up to $10 monthly to keep a checking account open. These high fees may lead to financial strain.
Apart from the monthly service fee, you also need to account for overdraft fees, foreign transaction fees, ATM fees, etc, which are expensive.
Rental Furniture and Appliances Services
Low-income people don’t have enough to spend on new purchases and often resort to renting furniture, appliances, tools, and other things. While this may seem economical, it could lead to long-term payments at inflated rates.
Remember that most rental companies include fees like interest charges, rental fees, delivery fees, deposit service charges, and other fees like insurance in their cost. That means that even though the initial cost may seem reasonable compared to purchasing a new item, the other charges could add up quickly, making rental services more expensive.
Rent-To-Own Services
Many poor individuals with low credit scores find the rent-to-own concept alluring as it allows them to own items they may not be able to afford. Unfortunately, the cost in the end is higher than purchasing the item upfront. Apart from the interest rate, you’ll have to account for processing fees, state sales tax, installation fees, delivery fees, etc.
Check-Cashing Services
Although check-cashing services allow you to cash checks without having a bank account, most are expensive, with fees ranging from 1-2% of the check amount. People with a lower income may find it hard to open a bank account and instead choose costly check-cashing services.
The high fees chip away at their ability to have disposable income or pay bills on time, leaving them struggling financially.
Coin-Operated Laundromats
Many people in the low-income group lack in-house laundry facilities. This forces them to rely on public laundromats, which can be costly over time. It also takes up a lot of time, which makes it harder for them to engage in money-saving activities such as cooking at home, shopping for the best deals, and making more money.
High Auto and Renters Insurance
Lower-income individuals end up paying a lot for basic renters and auto insurance policies as they live in areas considered high risk by insurers. Others fail to take advantage of policy discounts that can be earned when making advanced payments or bundling multiple insurance products.
A few do not take the time to shop around for the best insurance deals due to limited time and resources.
Taxi and Ride Share Services
Poor people are the biggest users of taxi and ride-share services like Uber and Lyft. Most will opt for these services due to convenience and service quality rather than cost. Unfortunately, frequent Uber rides tend to be expensive, and you’re better off catching the bus or taking the train to reduce transportation costs.
Tax Refund Advances
Opting for tax refund advance services sounds convenient but comes with high fees and interest rates. Many poor people will find themselves under unexpected financial strain and debt after signing up for a tax refund advance, as it’s not free money.
Refund advances have high interest rates and other hidden fees. Additionally, if your tax refund advance is less than the amount borrowed, you’ll still have to pay the full balance.
Title and Payday Loans
While title and payday loans give you access to quick cash, they all feature high interest rates, unfavorable terms, and expose you to aggressive collection tactics. These two high-risk loans only provide quick access to money and should be used as a last resort.
Unfortunately, many poor people who need fast cash rely on these loans and could end up in a debt trap as they keep reborrowing or rolling over their loans. That only leads to incurring high fees over time.
