Being poor is expensive. Not only do you have less money to get by with but everything also costs more. The secret to getting rich is in economies of scale and bulk buying, something the poor simply can’t afford. As they’re stuck trying to make ends meet day-to-day, they can’t invest in the future and so are stuck with false economies that cost them more in the long run. This is the source of the counter-intuitive saying that “You have to be rich to be poor.”

The poor pay more for groceries and food. This is because the poor are concentrated in urban areas where rent is higher so businesses have to charge more. The cheapest grocery stores are the ones who can use economies of scale and market power to push down prices (think of Wal-Mart). These are located in the suburbs where there is the most space and cheapest land. However if you are too poor to afford a car or it is too far to get public transport, then you are stuck with the expensive city shops. These shops are too small to buy in bulk, but instead have to buy from wholesalers and middle men, which pushes prices up.

This leads to additional problems like poor health. The cheapest food is usually the worst quality, while the healthy organic food is usually the most expensive. The poor are forced to buy the cheapest food that costs them in the long run through poor health. They solve a short-term problem by creating a long-term one. The poor also drink and smoke more, though if I had to deal with the stresses of poverty, I’d need a smoke too. The pub is often the only social area and source of entertainment in working class communities. The poor are the main purchasers of lottery tickets, for them it is the only way they can escape poverty.

There are numerous examples of false economies that capture the poor. A cheap pair of shoes may only last 6 months, whereas some twice the price may last 2 years. (Terry Pratchet explained this well) The poor simply don’t have the money to invest in quality goods and are instead trapped in poverty, paying more and getting less. There are significant discounts in buying fuel in bulk or during the summer and saving it for winter. However the poor lack such storage and can only buyer smaller (and dearer quantities).

The poor suffer from their exclusion from banks. Their lack of savings and poorer credit history means they have to pay higher interest and often are forced to resort to loan sharks. Instead of buying something outright they instead have to use hire purchase. It was reported that a $200 rent-to-own TV in Wisconsin costs $700 when interest is charged. They can be charged exorbitant rates and end up paying the loan several times over. Without a bank account they cannot cash paychecks but instead have to use shops who charge a 10% commission. These charges are known as a “Ghetto Tax” and if they were removed it would put an additional $6.5 billion dollars into the hands of the poorest Americans.

Poor people pay more in crime and security. It is the poor who live in the neighbourhoods with the highest crime and it is they who are robbed the most. Local businesses have to put in extra security measures and increase prices to pay for these. Crime forces people to focus on the short-term only and discourages long-term investment. After all, what’s the point in investing if it is only going to get stolen?

They suffer from poorer housing. As they cannot buy they have to rent, even for decades. The poor may have paid for a house several times over and still not own it. Poorer housing has poor insulation leading to more spending on heating. If you lack the money to pay a washing machine, you have to go to a Laundromat, and pay much more over the long run. Buying a cheap car costs you more in repairs. The poor lack the power of the internet to shop around and find cheaper alternatives. They are stuck with what they’ve got.

If the poor are late for a payment, they get hit with large fines and hidden charges. This severely damages their credit ratings and can cause them to lose the product, meaning prior payments are wasted money. Banks and insurance companies make huge amounts of money off hidden charges or and high interest rates are charged on overdrafts. When you are stuck trying to make ends meet on a day-to-day basis it is impossible not to miss a payment and suffer a fine. Not having a credit card is the same as having a bad credit history. You are stuck with the high interest loans and fees which eat your money.

The poor suffer from a lack of confidence and information. If you have low levels of education and lack of access to media, you cannot find out what the best deals are. The poor suffer from a lack of good networks and connections who can point them to the best deals. If everyone you know lives in the ghetto, then you’re stuck in the ghetto. Poor people are often exploited with hidden costs and charges, like they were by “predatory lenders” before the financial crash. They lack the information and education to be aware of all the details of a contract and as a result they are often tricked and conned.

They also lack confidence. Poor people often feel inferior around middle or upper class people. They are (deliberatively or accidentally) made to feel stupid and undeserving. Psychologists have noted the extreme levels of stress that working class people feel simply being in a bank. They feel they don’t belong, that people like them shouldn’t be here. Their self-esteem is crushed, even without anything being said. In the end they will accept whatever they are given and ask no questions.

Being poor crushes your soul. Many of the poor know that they are being overcharged and are getting a raw deal. But what can they do? They feel excluded and alienated from the rest of society. They feel cut off and that there is nothing they can do. So they give up. What’s the point in trying if you’re not going to win? So they buy from their local shop knowing its cheaper elsewhere. They accept what they have because they have no choice.