Thursday, August 25, 2005

Why is it so expensive to be poor?

It's a question asked in this UK article, The Price of Poverty.

From the article:

Real progress has been made in addressing these high concentrations of deprivation, inactivity and poverty. But on the ground, deprived urban areas have tended to remain deprived. People often move out when they move up. Meanwhile, too many of the poor have stayed poor. And to make matters worse, being poor is expensive - they pay more, and get less.In the US, the Brookings Institution has just published a report on working families in Philadelphia. It shows that the poor pay more for everyday goods and services - more than better-off families pay for exactly the same products. The same thing is happening here. What should the government do about this? There are three broad entry points - policies that focus on places, products and people.

The article offers this credit example ...
With mainstream credit unavailable or inappropriate, over 2 million people took out a home credit loan in the last 12 months, with average APR rates of 177 per cent. Other financial services can also be lacking: around half of our poorest households do not have any form of home contents insurance.

Credit unions have a role to play, as do Community Development Finance Institutions. That is why the government is proposing to extend tax relief to the personal lending activities of CDFIs. But CDFIs do not yet have the capacity or volumes to trigger a step-change. A more wide-reaching solution could be to explore a British version of a Community Reinvestment Act, an American law that effectively mandates banks to provide services to low-income communities. Introduced in 1977, and revamped under Bill Clinton, the CRA is loved and loathed in equal measure. Although its impact on financial exclusion is not clear-cut, it does seem to have brought banks into areas they would otherwise not have entered - and once they are there, they soon realise they can make a profit.

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