This article is part of a series in which OECD experts and thought leaders—from around the world and all parts of society—discuss and develop solutions now and for the future. Aiming to foster the fruitful exchange of expertise and perspectives across fields to help us rise to this critical challenge, opinions expressed do not necessarily represent the views of the OECD.
I have spent my entire career as an advocate for people who live in poverty. I have worked in rural and urban communities, with men and women who are homeless, families living in public, subsidised and market rate housing, and with both tenants and homeowners. The common thread in all of their lives is that it is really expensive to be poor in the United States of America. And when our general economy suffers, be it inflation or recession—or both—it is people with little income or few assets who unquestionably bear the highest cost.
To understand how inflation and other economic crises impact people who are poor in America—and implement public policies that mitigate or eliminate that damage—we must first understand how and why it’s so hard to live on a low income.
It is really expensive to be poor in the United States; it is even more expensive to be poor during inflationary times.
To be poor in America means paying more for food and other necessary goods. Many/most low-income Americans live in “food deserts”. A food desert is an area where residents have few or no convenient options for securing affordable and healthy foods—especially fresh fruits and vegetables. These communities are typically void of large supermarkets, which are usually filled with less expensive store-brand items and healthy options; instead they are populated by small corner “convenience” stores that by their very nature have less fresh food, limited choices and are always more expensive. Our recent (and current) pandemic and economic hardships further limited the availability of food choices in low-income community markets while simultaneously increasing the costs of all available goods.
To be poor in America means paying more for housing. Whether low-income families are looking to rent a decent apartment or buy a home, the cost is excessive. In the rental housing market, the United States’ complete failure to properly fund or subsidise rental housing has led to an enormous shortage of affordable apartments. This leaves people living below the poverty line with little choice but to spend a disproportionate amount of their limited income to pay for “market” rate units that have grown more expensive, in part because of inflation, yet are often substandard and unsafe. For low-income Americans who “own” their home (not counting the very high percentage of families who are unable to find an affordable home, even more so now as United States housing prices have skyrocketed), their monthly mortgage payments are often disproportionate to their income and the costs of necessary repairs often beyond their reach. One small crisis in their lives—a missed week of work because of COVID, an unexpected medical or transportation expense, a disproportionately high utility bill linked to inflation—leaves these families increasingly vulnerable to the loss of their home.
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To be poor in America means paying more for transportation. People who are poor are much more dependent on public transportation, which is severely lacking in many parts of the United States; when it does exist, is often unaffordable and enormously time consuming. This leaves many people in poverty dependent on older, used cars, which can be expensive to buy, more costly to insure and financially difficult to maintain. All these costs increased greatly during our recent economic crises when used car prices and fuel costs ballooned, leaving people with low incomes unable to buy, keep or even use their cars. When their automobile is an absolute necessity (to get to work or school, or to shop), people living with no margin in their budget are forced to make other financial sacrifices—including decreasing their food purchases, not getting necessary medical treatment or not paying other less necessary debts.
Beyond the existence of these predatory loans (and our failure to provide safe, affordable alternatives), the United States credit system is uniquely biased against low-income consumers.
To be poor in America means paying more for credit. Where to begin? Because we in America have failed to provide our residents with a basic financial safety net, credit has become an unfortunately necessary substitute for families who simply need it to manage day to day, month to month. The ubiquity of inexcusably expensive high-cost, short-term loans is a direct result of low-income people not having enough income or assets to meet their necessary monthly expenses (including child and health care). And if there are unexpected expenses, the desperate need for money/credit just to make ends meet often leads to debt spirals that may take years to recover from. Beyond the existence of these predatory loans (and our failure to provide safe, affordable alternatives), the United States credit system is uniquely biased against low-income consumers. While our “risk-based pricing” credit structure (used for credit cards to auto loans to home mortgages) may be advantageous to higher wealth individuals, it causes grave harm to the families who can least afford it. Because “risk” is measured as to lenders and not to borrowers (there is a much lengthier discussion to be had on whether that risk is measured properly or equitably), low-income people who least can afford it pay the highest credit costs. This leaves them at greater risk of default, debt collection, auto repossession and home foreclosure. Our recent inflationary pressures, our government response to it, and the resulting increase in the cost of credit have simply magnified these risks.
It is really expensive to be poor in the United States; it is even more expensive to be poor during inflationary times. While reducing inflation is necessary to reduce the increased harm suffered by low-income families, it is not nearly sufficient to create a more just and equitable economy. We need to commit ourselves to providing more sufficient income to all families—by raising real wages and benefits for workers and by substantially increasing our social safety net. And we need to commit ourselves to making certain that fairly priced food is available to all Americans, that efficient and inexpensive public transportation reaches communities throughout our nation, that decent, affordable housing is within everyone’s reach—both rental and owned—and that we create a credit system that measures success not by financial industry profits but by how it benefits all consumers. It doesn’t have to be really expensive to be poor in the United States. We just need to make the commitment to change it.