The Big Business of Poverty
In this installment of our Poverty Series, we talk about the big business of poverty.
Poverty is a big problem in the United States (and elsewhere as we’ve illustrated through this series) however, for the wealthy, poverty can be a big business.
The Tyranny of Payday Loans
You’ve seen the shops around town. With bright colors and catchy signs, payday loan locations offer banking services to those disenfranchised from the larger banking system. They will cash checks for a fee, even personal ones, and most importantly, they will offer you credit when you can’t obtain a credit card. However, it comes with a catch and that is the terribly high-interest rates that they charge. Interest rates on payday loans can range up to $500 of the amount borrowed. This can trap people in a cycle orpaying off and reborrowing again and again with more fees each time.
People can get sucked into a cycle of debt that they can never escape. What is even worse is that there are regulations to stop this and lawsuits have resulted in massive settlements to borrowers who have been screwed over by these sort of deals. It is predatory lending at its worse and it makes companies like Ace Check Cashing, Cash America, and other local chains who specialize in this business. It’s a cycle of debt, depression, and misery that afflicts the poor who take advantage of these services.
The Rent is Too Damn High!
Most financial experts agree that people should only spend a third of their income on rent. However, most Americans spend far more than that on rent. In some cases, the share of income going to shelter can reach 50% or higher, especially for poorer people. For those at the minimum wage, getting shelter at all is seemingly impossible. There is not a single place in this country where someone can rent an apartment working at the minimum wage.
Poverty restricts people from buying homes and that means people have only one other option: renting, By renting, people build no wealth for themselves, they build wealth for someone else. Landlords, especially local landlords are hardworking people. Having to take care of many units with all the appliances and all the things that can wrong with basic house systems is stressful, but the reality is that landlords are building long-term wealth that they can pass along to their kids. The people that rent from them are not building their wealth in that way. With the high price of rent, many people struggle just to pay the rent much less save money or build for the future.
The Big Business of Eviction and Foreclosure
Evictions and foreclosures are something that most banks and landlords want to avoid but like everything else in our society, it’s big business. Most landlords don’t handle their own evictions and hire services to handle the paperwork and court dates. Eviction services will charge landlords on fee schedules ranging from flatrate to a serviceby service fee schedule to make sure that the tenants leave. When banks repossess homes or even cars, they don’t send out a bank employee to do the job, they hire companies to do it. Then, the bank sells off the foreclosed asset again, often and market rate and can even come out ahead on the deal.
For the local people for whom this is big business, they can make good money working for banks and landlords simply for throwing people out of their homes. The other side of the transaction,is those who then buy those homes for pennies on the dollar, fix them up and then resell them at market rate. In this video from Vice, they travel to Detroit to interview the people who do this sort of thing and talk about the money they make in the foreclosure and tax purchase business.
The Rentier Generation
There are now more Americans renting than owning their homes for the first time since the Great Depression. This means that every month, these young people are not building long-term equity and building wealth. They are simply giving money so that the landlord gains income and long-term wealth. Wealth is being built but it is not in the hands of the people who can use it the most. This is especially true in the new market for renting single-family homes. Banks have gotten into the business of buying vast tracts of homes and renting them out, earning money for the bank and driving up rent prices and home buying prices trapping renters in a cycle of renting but never getting a chance to actually own their own home and building wealth from owning property. Millennials will most likely stay renting, especially if they are poor.
In this video from the UK, they do a great job of talking about the generation that will be forever trapped in renting and never getting a chance to own and build true wealth.
Poverty can be a big business for the right business. Whether it’s payday loans or eviction or even just owning buildings for rent, being poor means giving your money to wealthy people and corporations and watching your own chance at wealth and the American dream slip farther and farther away from you. This is how wealth concentrates at the top and keeps people forever poor and forever paying with no chance at wealth.