Saving Money in Poverty

Saving Money in Poverty

People in poverty are often criticized for the way they live and the decisions they make. From the outside it is easy to criticize the person in deep poverty who buys things they don’t need on QVC, goes to garage sales and buys junk that piles up inside and outside their home, and spends their money on fancy grocery items instead of the cheapest options. However, for people in the deepest poverty, escape to even just a more stable poverty can seem impossible, and when that is the case, there is little reason to work on saving.
Matthew Desmond demonstrates this reality by explaining the situation of a character in a trailer park named Larraine. He writes, “To Sammy [Larraine’s niece], Pastor Daryl, and others, Larraine was poor because she threw money away. But the reverse was more true. Larraine threw money away because she was poor.” Desmond walks through Larraine’s financial situation. She had a tiny amount of money left after paying the rent each month, and if she saved every penny that she could for the whole year, she would bank enough money to afford one month of rent. However, doing so would come at a huge cost, forgoing things that brought her a small amount of enjoyment in her trailer park poverty. Instead of penny pinching, Larraine splurged on frivolous fun items and enjoyed the small perk of getting something nice from time to time. This frustrated the people in her life who she sometimes asked for money because they saw her prioritizing face creams and steak over hot water and sufficient food for the whole month.
Desmond continues, “People like Larraine lived with so many compounded limitations that it was difficult to imagine the amount of good behavior or self-control that would allow them to lift themselves out of poverty. The distance between grinding poverty and even stable poverty could be so vast that those at the bottom had little hope of climbing out even if they pinched every penny.” When this is the life you are stuck with, then why continuously live with nothing. Why continuously try to save when a whole year of saving only gives you enough cash in the bank (or under the mattress) to be secure for one month of rent payments if something went wrong. If there is almost no hope of your financial situation improving, then why not enjoy what you can, even if it means you are going to suffer a little more in some areas or risk having a utility shut off for a few weeks.
Disconnection Notices

Disconnection Notices

In the book Evicted, Matthew Desmond writes, “in a typical year, almost 1 in 5 poor renting families nationwide missed payments and received a disconnection notice from their utility company.” Life in the United States can be brutal for the poor. We operate under an economic system that helps push the middle class to work hard, strive for more, and be the driving force of our economic engine. Some individuals from the middle class do advance, some do fall, and some poor people do rise up to achieve the middle class American dream. However, this system that focuses so heavily on a productive middle class doesn’t always match the realities faced by our nation’s poor.
It is true that all of us have to make tough choices every day. We have to choose to show up to work, we have to choose to actually work rather than socialize and play games once we get there, and we have to make responsible decisions to use our money to pay our bills rather than buy air Jordan’s and sushi every night. However, what Desmond and other authors who have written about poverty and homelessness in America show, for many of the poorest among us, even making those smart decisions won’t help alleviate their poverty. Desmond argues that one reason why so many people fail to pay utility bills and receive disconnection notices is that many people are paying as much as 50% of their income on rent and as much as 70% of their income on rent plus utilities.
For people in poverty who face high rents and utilities, they may have only 30% of a minimum wage income to spend on the necessities. That’s a tiny amount of their income to use toward transportation to school, work, or childcare. A fraction of their income is available to put food on the table. A sliver of the 30% can be used for clothes, perhaps a religious tithe, cleaning supplies, and basic household goods to replace worn and broken items.
Two things happen to poor people living in these situations. First, one instance of bad luck can upend years of hard work and good decision-making. A child who breaks something, a roommate who steals something, an unexpected healthcare cost, or a product that goes bad prematurely can be a substantial cost that breaks the bank and throws the perfect balance of that remaining 30% of income out of whack. For many individuals working at the lowest wage jobs, one slip-up can mean losing a job, making it harder to get a job and climb toward a higher wage, and compounding the financial difficulties that an individual may face.
The second thing that happens is that the individual recognizes how little it matters if they save a lot or don’t save at all. If one spell of bad luck can ruin your plans for using your money wisely, then why try hard to keep things in balance? Everyone forgets a bill sometime, or overspends impulsively, or faces an unexpected cost that sets them back, but for rich and middle class people, its no problem. For lower class people, it is a major problem that they are blamed for and often punished for. If this is the reality of your life, then there are actually incentives to simply spend money in a seemingly irrational manner and to enjoy what you can of the 30% remaining after rent and utilities. If you are going to have to live with the consequences of not having enough money, then why not enjoy what you can until your water and power are shut off. When you live in a constant state of stress where your entire pay check is gone toward bills and necessities, no matter how much you try to cut down, then you don’t really have an incentive to make smart decisions and continue to strive for better financial stability. Blowing your money on QVC items or a steak (something middle and upper class people also do) doesn’t seem like a bad idea, after all, you may have your power shut off regardless of how wisely you spend.