It’s an old saying, “The rich keep getting richer and the poor keep getting poorer.” And it’s true!
- From 1983 to 1998, the top 10% wealthiest households came to own 90% of financial assets and 75% of real estate investments.
- Between 1983 and 2004 the number of households with zero or negative net worth grew from 15.5% to 17%.
- In 2004, 26.8% of households had a net worth less than $5,000.
There are a lot of complicated reasons for the gap between rich and poor. But there are those who literally prey upon the poor.
Predatory lending strips billions of dollars from low income consumers, has pushed many into bankruptcy, and devastated entire communities. It targets minorities, single moms, senior citizens, and military personnel. Payday loans, car title loans, instant income tax refunds, and rent-to-own stores are among those who target the poor with deceptive, high cost financial products.
Most of these payday loans are small, $300.00 or less. The interest rates are around 400%. The roll over rate is 76%, meaning that the person was unable to pay off the loan in one pay period and had to extend the term of the loan, possibly needing to borrow more money. Among those who rely on these services, 80% have more than one loan per year.
Since they are a bad idea, why to people use them? Many of the poor do not have a relationship with a bank. Banks don’t offer small loans. They may have bad credit or no credit. They don’t have the relational capital to borrow the money from a friend or relative. They have not been privileged to the financial training and modeling that many of us had. Sometimes they make bad choices, being sucked in by advertising and consumerism, like the rest of us.
Alleviating poverty in a community is involved and takes several components.
- Begin by mapping the assets in the community, so there is a good awareness of what is already present in the community with individuals, organizations, institutions, and businesses. Then there will be better utilization and networking toward solutions.
- Obviously, people need jobs and most employers are looking for people with soft skills, like dependability, good ethics, communication skills, and a good attitude. These skills can be taught and relationships can be developed with potential employers. There are some great programs that have 70 to 80% placement and retention rates.
- Financial literacy training is another obvious need so that people become responsible with their finances. Again, several good programs are available.
Notice that none of these methods are relief oriented, i.e., they are not hand-outs; they are development oriented. However, they do involve a lot of work, cooperation within the community, and relationships in which people get to know the poor. The beauty of the approach is that is helps people provide for themselves, improves the local economy, is a more sustainable approach, and treats people with dignity.
Originally posted June 29, 2012.