Why It Costs More To Be Poor (A Simple Explanation)

all right so today in this video I'm going to share why it is more expensive to be poor and it's not just this common saying that you hear that people who maybe are on a lower income or in sort of this pit that's difficult to get out of there is a lot of truth to it I'm going to share those reasons with you in this video so if you want to learn more about personal finance making more money saving more money in building a better financial future for yourself then make sure you subscribe to the channel so you don't miss more videos like this one and hey if you find any value in this video make sure you drop a like we'd highly appreciate it let's just get started with this okay so let start about the first one here and this is not in any way a political video I have no agenda here this is just to share some things that do affect poor people more than people who are wealthy so one of them is regressive taxes so I don't wanna lose you here but there's really three primary ways that we can tax people in the world right so there is something we could see as a proportional tax so say everybody has ten percent of their income tax right whether you're making a ten thousand dollars a year or ten million dollars per year then there's also something called progressive taxes as to what we see in the United States with the federal tax system for income tax where people who are making a lower income or generally taxed at a lower rate so maybe maybe 10% of their income versus people who are making millions or billions of dollars might be taxed at 37% of their income at the top federal tax bracket now that's a progressive text and we have something called regressive taxes so not progressive but regressive taxes and as I said this is not a political video in any way whatsoever and it's not to say that we shouldn't have regressive taxes but it's something that does significantly affect poor people more than it affects wealthy people so something like a sales tax could be a primary example of this so to give you the example here let's say that people are spending an average of ten dollars per week in sales tax on certain goods now in some states you don't have to pay sales tax on a certain assess these like clothing and food but others might be a little bit different ok so let's say that you're spending ten dollars per week in sales tax maybe your tax is 7% sales tax on certain goods and services so ten dollars per week off of say somebody who's making three hundred dollars per week 725 an hour u.s. minimum wage times 40 hours a week about $290 so let's average it off to 300 hours per week versus somebody's making $3,000 per week so somebody is on a lower income the other person is quite wealthy making about $150,000 a year so the person who is making $300 per week and paying $10 in sales tax per week on goods and services so that's about 3% of their total income that's going towards the sales tax whereas somebody who's making $3,000 per week and they're paying $10 in sales tax that's one third of a percent of their income so 10 times more tax as a proportion of their income for people when we're looking at regressive taxes like sales tax now there's some other really interesting ideas behind this one thing such as the soda tax that they implemented in Philadelphia back in 2016 about three years ago now he was really interesting but there's one of the only things that Bernie Sanders and Donald Trump actually agreed on very very rare to see that happen and as I said I'll say this again this is not a political video it really isn't I have no agenda here but regressive taxes they do affect poor people much more than they affect wealthy people now I do think sales tax is important you do need to find a way to pay for your roads you do need to find a way to pay for the schools and municipalities and states and cities like to implement some type of sales tax so that they can raise money for this so that's one thing that does affect people the next one here higher interest rates this is something that you can counteract is something that you can work against higher interest rates do significantly are put on to poor people more so than people who are wealthy there's a couple of reasons for this one of them you have to understand that business is the primary goal in most cases is to make money and so when they look at risk analysis and they think about how risky is this person to lend money to well if they have no assets no collateral they have not very much maybe they have $200 to their name and they have a bad history potentially or or no history of borrowing money then they can be faced with a higher interest rate when they're getting a loan if they want a car loan if they want a home mortgage if they want some type of loan higher interest rates do affect people much more so when they're on a lower income and sadly when you look at these statistics and you look at credit scores you look at ability to borrow money people who are on lower incomes generally do default more on loans and for some obvious reasons if you're on a lower income it's more difficult to make it happen to be able to pay your bills and so to counteract this to counterbalance this building credit score can be a very important step here you want to make sure you go about it in the right way we've made videos about credit scores in the past on this channel if you want to get credit cards be very very careful with them go check out those videos if you're interested in it make sure you subscribe the channel for more videos like this one okay so the next one here $0 down schemes I really hate seeing this happen but when you look at the decision-making process of say two people say somebody was making $15,000 per year and somebody who's making fifteen million dollars per year the person who's making $15,000 has a little bit of a different decision-making process and it's not anything that's natural it's it's not that the person thinks differently but it's more so based off of the amount of income that's coming in forces you to make different decisions and thinking about how far you're thinking in the future for example and this isn't for everyone but generally speaking if people are on a lower income what happens is and there's books about this you can really look into this a lot but you're thinking a little bit more so shorter term because you have to you have to think how am i putting food on the table tomorrow how am i paying my electric bill next week and you don't have that that luxury to think like a wealthy person who says well I have enough money where I don't have to worry about that as much and so therefore I can plan it further out so this is something that does affect poor people more often and that is these $0 down schemes I hate seeing this happen but sometimes so for example I was just looking at some things to furnish my apartment with and I've been trying to figure out how to get a nice look in there and I was looking at some different things some of them for example TV so right I'm probably not gonna buy a TV I really don't watch TV but $0 down TVs only pay 18 dollars a month for the next two years and the TV's yours the problem here is that this really kind of wraps into predatory businesses here because what happens is if you were on a lower income and you see something for $0 down a lot of people fall into this because it's something in the short term you can say well I only have $50 to spend for this entire week for everything for all my expenses and I can get this for $0 now most people aren't that gullible to think that they're actually getting it for $0 but the point is it's much more attractive at that point if you have little money at the moment and so when you actually calculate the interest rates on some of these things it can be 20 30 40 % interest rates on some different things where there's no money down for a mattress some of these different items that essentially businesses can really prey on people who are on a lower income because they know that in a lot of cases they they are looking for something as a shorter term fix so they can be able to pay for food for tomorrow in the next day which is incredibly important and it's nobody's fault to say that the person who is struggling financially it's it's not their fault if they end up in these $0 down schemes but just be careful with this going forward if you find yourself in that position just be careful calculate the interest rate calculate how much you're paying if it's a two-year loan for the zero dollars down for say a mattress or say you want to get a couch or some other type of thing I actually calculate the interest rate it's very simple just look at how many months you're paying for and how much you're paying and how much that's actually going to be versus the cost of that item today so the next one is bank fees now this one is very interesting because this is another thing that you can counteract you can not fall into but bank fees when you look at the amount of fees that are charged a lot of them are imposed upon people who only have $200 $300 and they're hit with these minimum account balance fees where if they don't have $2,000 in their checking account they're hit with a $15.00 monthly fee say well I signed up for a bank so that I can save money and now you're taking money from me banks charge a lot of fees especially those brick-and-mortar banks like Bank of America Wells Fargo probably your local and bank if you're ever going to sign up for a bank account which it is important to have a bank account you don't want to just be using cash all your life and just put it underneath your mattress but if you're signing up for banks make sure that you're looking over this thoroughly to make sure that you're not getting hit with those bank fees and if you get hit with a $35 overdraft protection fee because you went below zero dollars on your checking account this is a significant amount more as a proportion of your income if you're making 300 ollars per week that's almost that's more than 10% of your income with the $35 fee versus somebody's making much more money it's a much smaller fraction of their income that's actually hit with these Bank fees but they do significantly affect poor people much more often than wealthy people and so this is one you can counteract by finding the right Bank for your needs and there's a lot of different banks out there that can offer this I like online banks I think they're pretty great some of these like Discover or American Express or CIT Bank they can offer you two interest rates with very little fees I really don't pay bank fees anymore I got hit with them when I was younger but you find a lot of ways around those just make sure you do a lot of research into it before you're signing up for bank accounts all right and the final one here that's really important to understand is what we call the toilet-paper effect now maybe you've heard of this in the past but this holds a lot of truth to it so the toilet-paper effect essentially the way that this works is that if you have less money if you are on a lower income there's a couple things I can go here so one of them being that you might not be able to buy 32 rolls of toilet paper at Costco or Sam's Club but rather one roll or two rolls because that's all you can afford and so this actually gives people who are wealthier sort of an upper hand here because they're able to plan this out further because they have the cash reserves to be able to say that they're buying things in bulk and then they can plan it out for the next month now a way to get around this or to at least kind of try to alleviate this is to be able to budget very thoroughly so I think anybody regardless of income should be running a budget it's very simple to do this I some Excel spreadsheets down below in these links if you want to get one of these for free this no scheme going on here this is just totally free to budget and start to find ways that you can find ways to essentially people to buy 32 rolls of toilet paper instead of having to buy one that's just an example that it's called the toilet paper effect but this goes with most things if you're buying food in bulk it's going to save you more money over the long run and it's more of a luxury that people have when they are really on their feet financially and doing very well financially now tying in this as well you can look at something like just something as simple as say if you are on a lower income and you don't have a car because you can't afford one but the grocery store is five miles away so instead of being able to go and get a loaf of bread at Walmart for a dollar fifty you have to go to your local convenience store might be four dollars that's just that's just another example that's another thing that is more difficult when you're poor so those are some things that we listed here in this video some of these as I said you can counteract all the ones more difficult like regressive taxes but some of these like higher interest rates $0 down schemes watching out for predatory businesses bank fees those are things you can get around and the toilet paper effect is another thing that so long as you're budgeting is that you can hopefully work against but those are the reasons why it truly is more costly to be poor it does cost more money it is more expensive especially the proportion of your income to actually get out of the pit of being in poverty and getting to to start climbing higher that's why people who are born middle-class or upper-class do have it easier now that's not to say that if you're born poor you can never get out of this millions of people do get out of this but it is much more difficult and so if you want to learn more about these topics make sure you subscribe to the channel we really do our best to bring out as many videos on these topics as possible helping people saving money making more money and building a better financial future for themselves if you found any value in it make sure you share this with somebody who might find some value in it thank you and I'll see everybody in the next video

Channel: Nate O'Brien

Views: 41,728

Rating: 4.9499249 out of 5

Keywords: difference between rich and poor, habits of rich, how to get rich, keeping you poor, middle class habits, money habits to become rich, nate obrien, poor habits, practical wisdom, rich and poor, rich and poor habits, rich dad poor dad, rich people habits, rich vs poor, things poor people do, things poor people do that the rich don’t, things rich people do, things that make you poor, being poor costs more, being poor expensive, cost of being poor, two cents

Id: 3x9aUW-pK2M

Length: 11min 55sec (715 seconds)

Published: Mon Aug 26 2019