Posted by: emjb | July 28, 2006

The ghetto tax and the rich man’s discount

I got an email from my car dealership the other day; buy four new tires and get a $50 gas card!

Well wuppity-doo. Guess I’ll just drop me a cool several hundred bucks for four new tires for my 7 month old car to get $50 bucks of gas (which is 1.33 fill ups, about). Who is this incentive for? People who have their money together for four new tires probably aren’t hurting for gas money, after all.

It’s a common irony, though. The more money you have, the more you can save. It’s cheaper in the long run to do lots of expensive things; buy good clothes, buy new everything with warranties, put your money in investments, use health-care savings accounts. If you have a lot of startup cash, they all make sense. If you don’t, then you pay full price and you pay more. It’s not just a matter of squeezing your pennies. It’s expensive to be poor. Which just makes leaving poverty a steeper and harder climb than most well-off people think.

The Brookings Institute just released a study documenting this very fact.

In general, lower income families tend to pay more for the exact same consumer product than families with higher incomes. For instance, 4.2 million lower income homeowners that earn less than $30,000 a year pay higher than average prices for their mortgages. About 4.5 million lower income households pay higher than average prices for auto loans. At least 1.6 million lower income adults pay excessive fees for furniture, appliances, and electronics. And, countless more pay high prices for other necessities, such as basic financial services, groceries, and insurance. Together, these extra costs add up to hundreds, sometimes thousands, of dollars unnecessarily spent by lower income families every year.

Other bloggers have called this the “ghetto tax” but it’s not restricted to ghettos. One of the more dispiriting things about living in a not-rich neighborhood of New York was how hard it was to buy necessities. There were not enough grocery stores, and the ones that were there had very little selection and charged higher prices than the nice stores on the Upper West Side. Or you had to ride three long subway stops away and then haul your groceries back on the train, through whatever nasty weather you were stuck with. Little basic things were surprisingly hard to find close by; if you wanted, say, a decent broom, you had to schlep out to Target on the train, pay too much at the local hardware store, or buy a really crappy one at the dollar store on the corner. Without a car or money for a taxi, your choices were always limited. And if you wanted to save at Costco way out in another part of Brooklyn, there were no trains that went there; you had to find a car or pay for a taxi, which might wipe out whatever you saved.

Poor neighborhoods in Texas don’t have it all that much better. The area we live now isn’t even what I would call “poor” but it’s not rich. And it’s a huge retail opportunity, being a very large neighborhood of apartment complexes with hundreds of families. But there is no grocery store closer than 10 miles away, no WalMart or even a drug store. Just one lonely convenience store, that charges more for a gallon of milk and a loaf of bread than any of those places. If you want to save, you have to have money to spend first.

Our neighborhood, by the way, has mostly Hispanic, black and Asian families. The neighborhoods where the stores are are mostly white.

This sort of segregation doesn’t seem to follow any economic logic. After all, black people eat, Asian people buy dishes, Hispanic people buy clothes or toys, just like anyone else. There is money waiting to be made, but for some reason, no one has stepped in to make it. My suspicion is that our neighborhood is the victim of redlining, in which banks and businesses are reluctant to do business in neighborhoods they see as less desirable. It’s technically illegal, but hard to prosecute. It’s also a way of pointing out just how much racism and classism still exists out there; even when there’s money to be made, businesses will choose to ignore non-white and poor customers.

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Responses

  1. Hey,

    I wonder where I can get some generic cialis?

  2. Hey, you got rid of the comments and now my comment looks like it came from left field. Doh!!

  3. That’s more like it.

  4. Dang it!


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