NCPA - National Center for Policy Analysis


October 24, 2005

Being poor frequently results in having to spend more, not less, than other people on goods and services, whether it be health care or groceries, according to a recent study of low-income families in Philadelphia.

Currently, thousands of dollars are being drained from the budgets of Philadelphia's working-class families through higher prices for everyday goods and services; this is undermining the city's efforts to combat decades of decline, says the Brookings Institution:

  • Low-income families pay at least $500 more than other families in the city for the same type of car, both because they are less likely to comparison shop and because poor consumers, being likelier to default, are charged higher rates on auto and other loans.
  • The annual cost of insuring a car and its driver is, on average, $400 higher for families living in the city's poor neighborhoods, where accident and theft rates are higher.
  • The poor often do not have back accounts; instead they must rely on check-cashing establishments which can legally charge up to three percent to cash payroll checks - a fee that amounts to $450 a year for a household earning $15,000.
  • They are less likely to be able to buy furniture and appliances outright, and the markup on installment plans can be staggering: in Philadelphia it averages 90 percent over the purchase price.

Furthermore, the poor are more likely to take out short-term loans, which in Pennsylvania may have an annual interest rate of more than 450 percent, says Brookings.

Source: Matthew Fellowes and Bruce Katz, "The Price Is Wrong: Getting the Market Right for Working Families in Philadelphia," The Brookings Institution Metropolitan Policy Program, April 2005.


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