Stop Complaining About The Poor Tax; Don’t Pay It

A very interesting article over at Wise Bread talks about ‘the poor tax’ – definitely something I’ve noticed.  It’s very appropriate given the current spate of protests started by Occupy Wall Street where people are complaining about this stuff.

Rich folks — even middle-class folks — get a whole bunch of stuff for free, starting with free checking. They also get stuff cheap — in particular, they get low rates when they borrow. Most important, they can take advantage of deals that are unavailable to poor folks. (For example, they can get huge tax-free investment returns by stocking up and they can afford to drop collision coverage on their car insurance.)

Poor folks end up dealing with check-cashing stores, payday lenders, rent-to-own stores, pawn shops, and all the other businesses that cater to poor customers — and end up paying a lot more.

You’d think that the shops that cater to rich folks would charge more, but that’s often not true. The stores that charge the most are the small shops in poor neighborhoods with a captive market of people whose work schedules and transportation options make it impossible for them to shop elsewhere.

Gary Rivlin, in a new book on the topic called Broke, USA, suggests that poverty ends up adding something like 10% to the cost of living for a poor person — it’s like an extra 10% tax just for being poor.

But (and this is the whole reason it’s worth writing a post about) it’s only like tax. It’s more accurate to analyze it as a fee — a fee charged, not on poverty itself, but on people who lack a set of skills related to running their household economy.

Most of us here at Wise Bread have these skills. We learned them from our parents, from our parents’ friends, from our peers, from books, from websites like Wise Bread, and maybe even in school. We know how to balance a check register, which means we don’t pay overdraft fees and we don’t end up bouncing so many checks that banks won’t take our business. We know how to create a budget, so deciding to go into debt is a decision, rather than something that just happens while you’re not looking. We know how to read the literature the bank sends with the rules for the various kinds of accounts.

The fundamental skill for avoiding the poverty tax is the ability to calculate the all-in cost of a particular set of choice

So forget politics for a moment. Just be practical – the government isn’t going to save you here. All those demands the protestors are making? Agree or don’t, they aren’t going to happen.

This has been one of my main points about the protest; they are counter productive. Not to ‘the system’ or to Power or whatever. To the lives of the people protesting. It’s not going to help. Got that?

If you want to help, take responsibility for getting informed and smart. Cut your stupid debt. Kill it.You’re going to do a lot better listening to Dave Ramsey than the dude with the megaphone.

Worried about being selfish and greedy? Good for you – go teach other people personal finance.