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THE HIGH COST OF BEING POOR

Yesterday, I attended a very stimulating briefing hosted by the Greater Philadelphia Urban Affairs Coalition, at which a Brookings Institute report entitled, “The Price Is Wrong: Getting the Market Right for Working Families in Philadelphia.” Commissioned by the Annie E. Casey Foundation, this report highlights the high cost of being poor, from higher interest rates for short-term loans to higher premiums for auto insurance. It was a fascinating look at the “expense” side of the ledger, as one speaker put it.

Two main points are cause for ongoing thought and action for me: 1) higher costs often come from less choices, and 2) the cost of being educated now is less than the cost of being ignorant later. As to the first point, competition is good for consumers, because it drives prices down. But if there is less perceived choice because you lack the access to market prices, you pay more. This is true if you are a poor farmer in Bangladesh (Mohammed Yunus is addressing this market inefficiency by providing cell phones to poor villages) or a poor family in Philadelphia (the city is considering a plan to go wireless, which if properly executed could help poor families comparison-shop online). And if there is less real choice because a provider of goods and services has a monopoly, you pay more. As a Philadelphian, I have to get my gas from PGW, which my friend used to say stood for “Patronage Gone Wild.”

As to the second point, it costs a city less to fund financial literacy initiatives now than to suffer the deleterious effects of people being financially illiterate later. It doesn’t take much to make your case that a dollar spent today offers a substantive return, in the form of a more economically inclusive city, stronger tax base, and more efficient commercial activity. But I posed the question after the briefing to a local politician like this: when those who control the purse strings have a choice between certain costs now versus uncertain costs later, will they not inevitably choose the latter?

This goes back to a running theme I’ve been mulling over. You can know the right answer – spend the dollar now on financial literacy, save many dollars later on financial ignorance – but you still have to have a political strategy to put it into action. The politician I queried mentioned that incarceration was a similar equation, and political leaders could no longer ignore the bulging prisons and prison budgets and would have to realize that an ounce of prevention now is worth a pound of cure later. We can only hope that when it comes to things like financial literacy and free-market fairness, our political leaders will come to that realization soon.