Why the poor get poorer

Poverty in the UK is where a household’s income is below 60% of the median income in the UK. The median UK income per household was £29,900 in 2020.

Therefore, if your household income was below £17,940 you were thought to be living in poverty.

Unsurprisingly this would have placed 14.5 million people in poverty in that year, which we would expect to have increased due to the pandemic.

Poverty trap

Once you find yourself in poverty, you can often become stuck in an ongoing cycle known as ‘the poverty trap’.

When the poorest people in the country rely on services we take for granted, this poverty trap becomes a real issue.

To put it into perspective, families who can’t afford Wi-Fi at home or computers often relied on schools and libraries to help their children learn through the vast free resources online. When schools and libraries closed due to Covid-19, this negatively impacted the poorest in our society above everyone else.

We believe that the first step to breaking out of this poverty trap is financial education, which unfortunately can only be accessed online. This has therefore left those who need it most unable to learn how to combat this cycle.

Expensive debt

The poverty trap becomes ever more present when you consider that if you are living payday to payday, you are likely having to use debt to make ends meet.

There is no problem with using debt to your advantage, but unfortunately, those in poverty get stung with more expensive debt because the chances they won’t pay it back are far higher.

Once you get deep into poverty, taking on more debt becomes second nature and the thought of being unable to pay it back becomes less concerning. The banks and financial institutions will “thoughtfully” allow you to make minimum payments which will never make a dent in what you owe.

The interest you owe begins to mount higher and higher, and families have to choose between their livelihood and paying off their debts. This is not a choice that should ever have to be faced.

The Poor Man pays twice

There is a common saying that “the cheap man pays twice” and this refers to the fact that typically cheaper items are made of lower quality materials and so an item (e.g shoes) will have half the lifespan that the more expensive counterpart would.

Since it is more cost-efficient to buy cheaper items, those in poverty often end up doing so and then have to constantly replace items which comes at a huge cost.

Unfortunately in this day and age, it is very much a case that the poor man pays twice.

Unable to bulk buy

Those on tight budgets will often visit the supermarket multiple times a week because they are conscious of wastage and overspending. However, by doing this the overall spend on groceries will typically be higher than had you gone once.

Those living in poverty will usually be on electric/ gas key meters which are far more expensive than being on a tariff and as a result mean families have to choose between warmth or saving pennies.

There are hundreds of examples like this that prove why the poor get poorer, but what is the purpose of this blog post?

My thoughts

Sometimes we all get caught up in how well we are doing and often forget that people in our own countries are living in poverty.

It is important that we understand how anyone can plunge into poverty at a moment’s notice if they don’t have a solid financial plan in place.

If you are fortunate enough to be living a good life, then I urge you to create an emergency savings fund of 3-6 months worth of your expenses to ensure you never have to face these worries.

Whilst I can’t help people get out of the poverty trap, I make it my mission to provide the financial education that you can use to escape it.

Thomas,

The Bank Engine