Poverty Traps That Are Keeping You Broke

Being poor is expensive. You don’t need to be told that, especially if you’re always living paycheck to paycheck and are struggling to get by; you’ve noticed. Still, when you’re just trying to get through the week, it can be easy to not examine why you’re constantly in a financial fix.If you want to improve your finances, it may help to be aware of something called the cycle of poverty – and some of the many traps that keep you in it. The cycle of poverty is a term used to describe the phenomenon where poor families stay impoverished for at least three generations. Generally speaking, if your grandparents were poor, and your parents were poor, the odds are decent that you, too, will be poor.It’s a cycle that can be broken, but it can be difficult to do so. For instance, wealthy parents may decide to pay for their kids’ college education – and if their kids are adults and run into some financial trouble, they can most likely help them out with a no-interest loan. If your parents are poor, they probably can’t help you as much. If things are really bad, you may be asked to not further your education at college or a trade school and just take a job after high school and start funneling some of your income to the family.And if you live in a low-income community, this is when the odds really become stacked against you, according to Jason Douglas, an assistant professor of public health at Chapman University in Orange, California.Douglas says that when you’re in a low-income community, you probably have multiple forces that are keeping you from getting ahead.“For example, skyrocketing rents often force underserved residents into overcrowded housing conditions that increase exposure to infectious disease,” he says. “Inequitable access to public parks and safe places for children to play in underserved communities is a recognized risk factor for childhood obesity. Uneven exposure to air pollutants and urban heat islands in underserved communities exacerbates asthma and excessive heat-related health disparities.”And if the asthma or some other health issue you’ve picked up in your community causes you to lose time at school and work and spend a ton of money on medical bills, “the perpetual poverty cycle continues,” Douglas says.How do you break that cycle of poverty? Many people don’t. That’s why some academics and professionals who study poverty urge for government intervention.Lori Brown, a professor of sociology and criminology at Meredith College in Raleigh, North Carolina, says that she would like to see the government find a way to help poor people make or keep more of their money. She points to low pay as the biggest poverty trap. “Everyone should make a living wage, with full benefits so that they are not underwater on medical bills. Minimum wage needs to go way up.”Much of the problem, Brown says, is “structural.” She says that “poverty is a choice we have made as a country.”Whether you agree or not, there are official numbers that indicate whether a household is considered impoverished. The government considered a household of one making $14,580 or less as being in poverty.The federal minimum wage is $7.25 an hour, but many states have set higher minimum wages. If you are making $7.25 an hour, work 40 hours a week, and you work 52 weeks a year, you’d make $15,080. You’d be just over the poverty line, but not by much.If you have two people in your household and you make $19,720 or less a year, you’d be considered poor. For three people in the family, you’d have to make $24,860 or less a year to be designated in poverty. For a family of four, the numbers involve a $30,000 annual income or less.And even if you make more than minimum wage, fears of a recession, plus inflation skyrocketing the price of basic needs such as food and rent, make for a financially uncomfortable outlook for many people. There are numerous traps that can keep people in a cycle of poverty, mired in debt or even a less than ideal financial state, but a few of the more common ones include the following, according to experts.Lenette Azzi-Lessing, a clinical professor at the Boston University School of Social Work, says that many borrowers end up regretting going to payday lending companies “that charge ridiculously high interest rates” and she says that some credit card debt can be just as bad.“In many situations, steadily accruing interest and late fees end up costing borrowers far more than the original loan,” Azzi-Lessing says. “Another example of the exploitation of people in poverty is some of the rent-to-own companies that charge monthly fees for renting furniture and televisions that, when paid over time, cost the renter more than these items would have had the renters been able to purchase them outright.”Azzi-Lessing says she recommends working with a nonprofit consumer counseling service to create a strategy for paying off outstanding loans. If you don’t have much debt weighing you down but you do have a poor credit score, working to improve it by paying bills on time should eventually make you more likely to be eligible for low-interest loans, thus allowing you to buy a car or a house at a cheaper rate. You’ll also want to try and put some money away into a savings account and create an emergency fund, so you aren’t reliant on high-interest loans. But of course, this is all easier said than done when you’re buried in debt or stuck in a cycle of poverty.Azzi-Lessing makes the interesting point that what can save your financial future can also wreck it.“Although young people are constantly told that getting an education is essential to economic well-being, going to college ends up trapping too many of them in poverty or near poverty because of student loans,” she says. “This is particularly true for young adults from struggling families, who may not understand the ramifications of racking up tens of thousands of dollars in debt. This debt and its steadily accruing interest can crush their future prospects, especially if they drop out of college or graduate with a low-paying major.”Unfortunately, there’s not a lot you can do once you’re mired in student debt other than making sure to stay on top of it, since missing payments and paying late will only hurt your credit and ability to get low-interest loans. If you’re not yet in college and plan to go, choose your college and major wisely. Once you do start school, do everything you can to not drop out. And if you can make payments early to subsidized loans, which generally don’t collect interest when you’re in school or during a deferment period, that may help you pay the student debt off faster.Jennifer Greenfield is an associate professor at the University of Denver Graduate School of Social Work and specializes in social policy and health and wealth disparities. She says that “cliff effects” often make people more impoverished than ever.“Current safety net policies are often structured with sharp ‘cliffs,’ which are income limits at which the eligible person loses access to the benefit,” Greenfield says, citing examples including Medicaid, housing supports like Section 8, Temporary Assistance to Needy Families and child care subsidies in many states.“These cliffs often create perverse incentives to reduce working hours or stay in low-paying positions, since a small increase in income may cause loss of benefits that leave the worker either less well off financially, or unable to work due to lack of child care, medication coverage or other vital supports,” Greenfield says.She says that these cliffs can even sting upper income families, such as the Child Tax Credit, “which has a phaseout of $50 per every $1,000 in income earned above $200,000 for single filers, and $400,000 for married couples.”But the cliff effects are really tough for poor people, Greenfield says. She says that in Denver, the minimum wage was just bumped up to $17.29. That should be welcome news, but the increased minimum wage has now meant that many households are making too much to benefit from programs like the Special Supplemental Nutrition Program for Women, Infants, and Children, also known as WIC benefits.Greenfield says that many workers are reducing their hours because they can’t afford to lose those important WIC benefits.By not doing so is how most people get into financial trouble, regardless of whether they’re poor or rich. Educating yourself about your finances is the best way to counter the poverty trap, according to Azzi-Lessing.“Financial literacy should be taught in all high schools to empower young people to take control of their financial well-being and plan for the future. Managing one’s finances is an essential life skill that is neglected by most of our public education system,” Azzi-Lessing says.

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