The High Price of Being Poor

The High Price of Being Poor:

Turns out that being poor is expensive. Everything from a loaf of bread to a mortgage costs more in Hub City than in more plush areas of Los Angeles, like Manhattan Beach or Beverly Hills, even though nearly one out of every three people in Compton lives below the poverty line.

Take a drive down Compton Boulevard and you can see some of these higher prices in storefront windows. But you won't see many banks. According to research I did for a Brookings Institution study of poverty, where cities like Manhattan Beach have roughly one bank for every 4,000 residents, Compton only has one for every 25,000. Instead, it has hundreds of alternative financial services—mostly absent from wealthy areas of Los Angeles—that charge jaw-dropping prices. Cashing checks, for instance, costs 3% or more of the check's value. And customers who take out a short-term loan can be hit with an annual percentage rate of 400% or more—a rate estimated to be more than 35 times higher than the average credit card rate in California...

...Other communities facing similar situations have launched initiatives to help solve these problems. For example, New York spurred the opening of 26 new bank branches in lower-income neighborhoods by supplementing consumer deposits in these areas with state treasury deposits. And nearly a dozen states and cities have curbed the development of high-priced alternative financial service companies like check cashers and payday lenders. more