<story><title>Why Do People Stay Poor? [pdf]</title><url>http://sticerd.lse.ac.uk/dps/eopp/eopp67.pdf</url></story><parent_chain><item><author>jfrunyon</author><text>Easy answer: because expenses are higher for poor people.&lt;p&gt;Instead of buying a home, the lower class rent their whole life. Instead of their daddy giving them a home, the middle class pay interest on a mortgage most of their life.&lt;p&gt;Instead of buying a 20-pack of $necessary_product that costs $20 and will last for months, the lower class buy a 2-pack that costs $5 and lasts a couple weeks because they need the $15 to pay rent. And then they have to spend more money on gas (or bus fare, or a taxi, or time and energy walking, or ...) to get to the store again sooner.&lt;p&gt;Instead of the employer providing any supplies that are needed, the lower class have to buy their own uniforms or tools.&lt;p&gt;Instead of a 5% interest rate on their loan, they have a 25% interest rate.&lt;p&gt;Because they don&amp;#x27;t make enough money to set some aside as savings, they have to pay late fees or NSF fees or overdraft fees.</text></item></parent_chain><comment><author>Balgair</author><text>Slight aside: Poor people aren&amp;#x27;t trying to maximize profits. They are trying to minimize risk.&lt;p&gt;It&amp;#x27;s a small quibble, but it helps explain the different behavior of the wealthy and the poor. More importantly, it explains the &lt;i&gt;mindset&lt;/i&gt; that changes with wealth.&lt;p&gt;Bret Devereaux of the &lt;i&gt;acoup&lt;/i&gt; blog had a good piece on this in reference to medieval farming estates of lesser nobles and the abject poor [0]:&lt;p&gt;&amp;quot;I led in with all of that risk and vulnerability because without it just about nothing these farmers do makes a lot of sense; once you understand that they are managing risk, everything falls into place.&lt;p&gt;Most modern folks think in terms of profit maximization; we take for granted that we will still be alive tomorrow and instead ask how we can maximize how much money we have then (this is, admittedly, a lot less true for the least fortunate among us). We thus tend to favor efficient systems, even if they are vulnerable. From this perspective, ancient farmers – as we’ll see – look very silly, but this is a trap, albeit one that even some very august ancient scholars have fallen into. These are not irrational, unthinking people; they are poor, not stupid – those are not the same things.&lt;p&gt;But because these households wobble on the edge of disaster continually, that changes the calculus. These small subsistence farmers generally seek to minimize risk, rather than maximize profits. After all, improving yields by 5% doesn’t mean much if everyone starves to death in the third year because of a tail-risk that wasn’t mitigated. Moreover, for most of these farmers, working harder and farming more generally doesn’t offer a route out of the small farming class – these societies typically lack that kind of mobility (and also generally lack the massive wealth-creation potential of industrial power which powers that kind of mobility). Consequently, there is little gain to taking risks and much to lose. So as we’ll see, these farmers generally sacrifice efficiency for greater margins of safety, every time.&amp;quot;&lt;p&gt;[0] &lt;a href=&quot;https:&amp;#x2F;&amp;#x2F;acoup.blog&amp;#x2F;2020&amp;#x2F;07&amp;#x2F;24&amp;#x2F;collections-bread-how-did-they-make-it-part-i-farmers&amp;#x2F;&quot; rel=&quot;nofollow&quot;&gt;https:&amp;#x2F;&amp;#x2F;acoup.blog&amp;#x2F;2020&amp;#x2F;07&amp;#x2F;24&amp;#x2F;collections-bread-how-did-they...&lt;/a&gt;</text></comment>
<story><title>Why Do People Stay Poor? [pdf]</title><url>http://sticerd.lse.ac.uk/dps/eopp/eopp67.pdf</url></story><parent_chain><item><author>jfrunyon</author><text>Easy answer: because expenses are higher for poor people.&lt;p&gt;Instead of buying a home, the lower class rent their whole life. Instead of their daddy giving them a home, the middle class pay interest on a mortgage most of their life.&lt;p&gt;Instead of buying a 20-pack of $necessary_product that costs $20 and will last for months, the lower class buy a 2-pack that costs $5 and lasts a couple weeks because they need the $15 to pay rent. And then they have to spend more money on gas (or bus fare, or a taxi, or time and energy walking, or ...) to get to the store again sooner.&lt;p&gt;Instead of the employer providing any supplies that are needed, the lower class have to buy their own uniforms or tools.&lt;p&gt;Instead of a 5% interest rate on their loan, they have a 25% interest rate.&lt;p&gt;Because they don&amp;#x27;t make enough money to set some aside as savings, they have to pay late fees or NSF fees or overdraft fees.</text></item></parent_chain><comment><author>redorb</author><text>This is a great definition of what I consider to be the &amp;#x27;poor tax&amp;#x27;..&lt;p&gt;Not to mention if they ever get un-poor they don&amp;#x27;t have the knowledge to &amp;#x27;build wealth&amp;#x27; until they start slowly learning it or from a mentor.&lt;p&gt;We would better off teaching &amp;#x27;home finances, interest and banking&amp;#x27; classes instead of Algebra 3 or geometry 2 (for 99% of people)</text></comment>