People in low-income communities face higher costs for everyday life.
This additional burden is known as the “ghetto tax” or “poverty tax.” It is the practice of charging poor people more than rich people for the same product or service.
The ghetto tax is not a new concept.
The ‘price of poverty’ is a long-standing problem, placing a burden on those who cannot afford to pay it.
a According to a study by the Public Policy Institute of California, grocery prices can be up to 10% higher in these areas. That means a family that typically spends $200 a week on food would end up paying an additional $20 because of this “ghetto tax.” That’s like throwing over $1,000 a year down the drain.
And it’s not just a matter of cost. It also has to do with what you can buy. The University of Washington found that healthier food costs 18% more in less affluent areas. This means families often have to choose less healthy options even though they are already paying more.
More research supports this. A Lehigh University study found that food was about 9% more expensive in Philadelphia’s poorer neighborhoods. And it’s not just Philadelphia. In New York City, the price difference for essential goods like milk and bread can be up to 20%.
The University of Illinois at Chicago found that stores in low-income areas can charge 5% to 10% more for the exact same items, even if the two stores are part of the same chain. did.
predatory lending
It may seem like an easy solution if you need cash right away, but it will cost you much more in the long run. This is a big part of what some people call the “cost of being poor.”
Let’s look at some numbers. According to research by the Pew Charitable Trusts, 12 million Americans take out payday loans each year. These people end up paying an average of $520 in extra fees to borrow just $375. It’s like borrowing a dollar and having to pay back the dollar and a half over and over again.
The Consumer Financial Protection Bureau adds to this that most people are unable to repay their payday loans on time. So you have to take out another loan to cover the first one, and the cycle just continues. It’s like falling into a hole and digging deeper to get out.
Insurance premiums become high
a Research by ProPublica and Consumer Reports We found that people living in predominantly minority areas can pay up to 30% more for car insurance than those living in affluent areas, even if they have the same driving history. did. Imagine two people. Let’s call them Alex and Jamie.
They both drive the same type of car, are the same age, and have never gotten a ticket. However, Alex lives in a richer area and Jamie lives in a poorer area. Jamie could end up paying $300 more per year because of where he lives.
another Survey by the National Insurance Commissioners Association We find that renters often pay more than homeowners for the same insurance coverage. So if you’re renting because you can’t afford to buy a home, you may end up paying insurance premiums on top of that.
In both examples, people end up paying more simply because they have less to begin with. It’s like a snowball effect: once you start falling behind, it becomes increasingly difficult to catch up.
poor public transport
Lack of public transportation disproportionately impacts low-income areas, increasing what is often referred to as the “cost of poverty.” Unreliable or infrequent bus or train service may result in additional costs for alternative transportation such as taxis or rideshare services. These alternatives are usually more expensive than standard bus fares.
job hunting
a Harvard Business School Research found that people from wealthier areas were more likely to be called back for interviews than people from poorer areas, even if their resumes were nearly identical. Simply put, your address alone may not get you a job opportunity.
Deposit and utility hurdles
a Research by Urban Research Institute We found that about one-third of American households face difficulty paying for basic utilities such as electricity and water. If you’re in a low-income household, your utility bills are likely to be high, and in some cases, the bill could be the equivalent of two months’ worth of her bills. If you raise it all at once, it will be a considerable amount of money.
A report from the National Low Income Housing Coalition highlights how high down payments can be a barrier for low-income households when renting a home. Often these deposits can amount to his month or two of rent, not to mention additional fees for background and credit checks.
So let’s say you move to a new place. If your rent is $800 a month and you have to pay a deposit equal to two months’ rent and a $50 background check, that’s $1,650 before you can move in. It’s even more expensive if you also have to pay a utility deposit. prepaid money.
David Bakke is a personal finance expert and author of the book Don’t Be A Mule. He earned his bachelor’s degree in creative writing from the University of South Florida, specializing in money management, investing, retirement, income generation, and entrepreneurship. David started his own blog YourFinances101 in 2009. His work has been featured in Investopedia, Business Insider, US News, and Money Crashers.
