September 09, 2005

Poverty Lines

In the New Republic this week, Noam Scheiber discusses some lessons about poverty learned in the wake of Katrina:
Clearly, a lack of money is far from the only handicap afflicting the poor. They lack the basic life skills, social networks, and general sense of agency that even the slightly more affluent--working-class people--take for granted. The poor black family [that was still wandering around days after being evacuated from New Orleans] in [Jodi] Wilgoren's [Times] piece certainly could have benefited from a car or a few hundred dollars in aid. But much more valuable would have been instructions beforehand on how to open a bank account. Everyone else learns these sorts of things by following the example of relatives, friends, and neighbors. The problem with acute concentrations of poverty is that they afford few such examples.

Sociologists, of course, are keenly aware that poor people need to be integrated into society as much as they need financial help. But, sadly, there isn't much of a political constituency for this idea. Liberals like Lewis tend to focus either on redressing racial grievances or on the immediate needs of their constituents: food, health care, a subsistence wage. And, with the needs so great, it's hard to blame them. Conservatives do frequently invoke sociology in their analysis of poverty. But, too often, they do it either as an excuse for not spending money, or out of a preoccupation with personal morality. Yet, while out-of-wedlock births, for example, are clearly a problem in New Orleans, they don't entirely explain why so few poor, black New Orleanians were incapable of protecting themselves from the flood. (The black couple in Wilgoren's piece was married, after all.)
All good points here, I think, and as an example of the sorts of solutions he's talking about, Scheiber points to SEED, a Washington-based boarding school that imparts "life skills" to the poor. Sounds fantastic. But a word or two on Scheiber's point about bank accounts, because it's a useful example for looking at poverty a bit more closely. Basically, a lack of "life skills" or "social networks" isn't quite the main problem here, although they may play a part.

It's true, many Americans don't have a bank account—12.7 percent of all households, according to a 2003 Federal Reserve survey. Education, per Scheiber's theory, might explain some of this, but really, only 6.6 percent of those without checking accounts said it was because they "couldn't balance" one. (No one said they didn't know how to open one; about half of the account-less had actually had one in the past.) Income plays a bigger role here: 60 percent of these households sit in the bottom income quintile, and many of them simply can't afford the minimum balance and maintenance fees. (About 30 percent gave a reason along these lines for not owning an account; another 4 percent cited "credit problems".) Day to day, it's often cheaper not to have an account than to have one, although obviously in the long term, banks are valuable for accumulating wealth and whatnot—and that's where education can come in handy. Still, the short-term barriers can be steep.

Moving on, it's also easy to forget that the poor very frequently take advantage of many things that are like banks—check cashers, payday lending, pawnshops—all of which provide valuable services that regular banks just don't. A person living paycheck to paycheck quite obviously doesn't have time to sit around and wait for a deposit to clear. And sometimes you need to get stuff cashed—or wire money—on the weekend. And so on. Additionally, 22.6 percent of account-less households said they "don't like dealing with banks" as a reason for not getting an account, for whatever that's worth. In part, then, the banks themselves are a factor here, as they don't tailor their services to low-income households. In the long run, of course, the poor are grossly disadvantaged from relying on check cashers and payday lenders and whatnot, all of whom charge exorbitantly high fees. But in the short run, these institutions are more convenient.

So I count at least three things preventing poor households from owning an account: Steep fees and barriers to entry, lack of education on the benefits of banks, and, crucially, the fact that banks don't provide the sort of services many low-income families often need and require. Luckily, you can come up with all sorts of technocratic solutions to clear these hurdles, but it's worth thinking through just how multifaceted these problems really are.
-- Brad Plumer 10:13 PM || ||