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In a Utopian society, those with the broadest shoulders would bear the heaviest burdens, but as Licensed Insolvency Practitioners, we’re well aware that those who already have considerable resources are the most likely to hold on to them and those who have less, tend to be more financially vulnerable. Added to inherent disadvantages of having fewer resources to fall back on, there’s growing disquiet about the way those already in dire straights are charged more for goods and services than those who are better off. This is the so called ‘poverty premium’.
What is the Poverty Premium?
At its most fundamental, the poverty premium is a penalty for being poor and has been estimated to cost low income households between £500 and £1,200 for the goods and services they need, over and above what would be charged for the same or similar services if provided to more affluent households.
While only the most cynical business models would deliberately charge people more for being less well off, the reasons behind why the poorest in society pay more are less overt, but nevertheless amount to the same thing, leaving those with the least even worse off.
- Volume Discounts – Buying in bulk is an easy way to make a saving over time, with multiple purchases costing less per unit. Providing you can afford the initial outlay and have the space to store the bulk purchases, the savings, particularly for food items, can be significant. Those who can’t afford the initial outlay, live in accommodation too small to store much and don’t have access to membership of cash and carry stores where some of the best discounts can be found all lead to poorer people paying more for their day to day essentials.
- Access to Credit – The ability to obtain credit, when used responsibly, can help people smooth out the financial bumps in the road, but credit companies don’t offer the same interest rates to everyone. When applying for credit, the people who, according to their credit score, are most likely to pay back without issues are the ones who get the best deals. Invariably, these are the people whose finances are far more stable. Poorer people, whose finances are more mercurial are seen as a greater risk by credit providers and as such, if they’re able to get any credit at all, they’ll almost certainly pay more for it.
- Access to banking – Having a bank account is something many of us take for granted, but not every has one. It’s predominantly the poorest in society who are the most likely to have no account and most likely to be unable to open one. Bank accounts are far more than a safe place to store money, they allow access to cash through a network of machines and cashless transactions with most businesses and service providers either in person or online. Being without the means for cash withdrawal and electronic payment severely restricts the options for those without bank accounts and inevitably results in them paying more because of it. Recent research shows that having no bank account, by itself can lead to paying nearly £500 a year in bills.
- Higher Prices for Utilities – There is a lot of choice in the market for utilities, but, as already mentioned, the poverty premium affects the ability of those with fewer means to obtain credit and with many utility providers offering better deals to those who pay monthly on direct debit, with electronic billing often cheaper than paper billing. This means that those who cannot get credit, do not have access to the internet and do not have a bank account are automatically cut off from the best deals. The poverty premium in action.
- Access to the internet – We live in an age where communication has never been more fast and accessible, however, for those without access to the internet, they’re unable to access the powerful comparison tools, services and discounts which are only available online. While internet access is, for the most part fairly affordable, it does require equipment to use, whether that’s a mobile phone, a computer or a tablet. For those unable to take a mobile phone ‘on contract’ or buy a computer on credit, the technology to get online is incredibly expensive.
What’s the solution to the Poverty Premium?
The very existence of a poverty premium is something about which many people, whether subject to it or not, are deeply uncomfortable. But the solutions are less obvious. In recent years, there have been moves to prohibit utility providers from exploiting those using pre-payment meters and banks have come under pressure to offer free basic banking facilities and to curtail high charges for unplanned overdrafts, but even so, for various reasons, the poorer still find themselves paying more.
While the poverty premium is hard to avoid, there are strategies which can help improve individual’s financial position so that the effects are less keenly felt. For those struggling with personal insolvency, we offer a free consultation to discuss your situation and provide guidance as to where to go next. Contact us today and arrange an appointment, the sooner you do, the sooner your situation will begin to improve.