Making ends meet is much harder today than it was a year ago or before the pandemic.
Runaway inflation at 8.3% forces Americans to work harder just to buy less. Unless you’re working with significant income to begin with, rising costs for essentials are stealing your quality of life and your ability to advance in America.
For that reason, many Americans find Tuesday’s celebration of the Inflation Reduction Act in the White House an insult to their hardship.
The misleadingly named bill will not curb inflation as much impartial analysis confirmed, but may increase accordingly in the near future Penn Wharton’s Budget Model. Meanwhile, grocery bills soared 13.5% in August from a year earlier, when food prices rose at a pace not seen in 43 years.
Americans need solutions to pay for groceries, haircuts and heating bills. Right now, Washington is not the source of solutions but of problems, especially when they enact policies that limit poor Americans and minorities’ access to cash when they need it.
Many minorities, especially women, made better lives for themselves and their families while working in lower-paying jobs. Then a pandemic. It showed how vulnerable the (minority) industries where women are typically concentrated — leisure and hospitality, human services and retail — were to prolonged closures and an uneven recovery.
Today there are 1.2 million fewer leisure and hospitality jobs than just before the pandemic began.
Two and a half years later, black and Hispanic families should get their feet under their feet, but inflationary policies like President Biden’s American rescue plan forced real earnings down 3.4% Last month.
A recent NPR/Harvard opinion poll Notes that black Americans are significantly more likely than whites to report serious financial problems due to inflation (55% to 38%), more likely than whites to say they don’t have enough emergency savings from spending for a month (58% to 36%) and afford food (32% vs. 21%). No wonder over half of non-white voters (54%) disapprove of the President’s work.
Many non-white families are unbanked and unable to access traditional sources of credit or bank loans for contingencies. An estimate 5.4% of US households (about 7.1 million) were unbanked in 2019. They tend to belong to non-Asian minorities, low-income households, households with less education, young households and households with disabled members are more likely to be unbanked.
They often rely on short-term installment loans (pejoratively known as payday loans) to pay a bill until they get their paychecks. These products often have a nominally high Annual Percentage Rate (APR).
If the loans are not repaid on time, they can become very expensive. However, most borrowers pay back the original amount borrowed within six months research.
It is common for those who claim to care for poor people to deride the short-term lending industry. Worse, lawmakers want to effectively wipe out these financial institutions by imposing arbitrary interest rate caps. The Senate considers a national interest rate ceiling of 36%.
The unintended – or perhaps intended – consequences of interest rate caps would be to discourage lenders from offering these loans. Higher interest rates reflect the risk of lending to someone with bad or no credit.
As a Federal Deposit Insurance Corporation (FDIC) paper. In conclusion, “The fixed operating costs and high loan loss rates justify much of the high APR charged on payday loans.” For the bankless, these loans are a better option than expensive and, frankly more dangerous, alternatives.
Surprisingly, even institutions we trust to weed out scammers and bad companies have now targeted small loans. The Better Business Bureau (BBB) released a new investigation report in payday loan scams.
In the shadow of the legitimate industry, individuals engage in fraudulent activities by taking advantage of vulnerable individuals.
The report is correct that fraud is illegal and should be prosecuted. Unfortunately, the BBB unfairly lumps together small lenders with scammers as if they are one and the same.
To be clear, most small dollar lenders do not deserve an F rating of BBB and at at least half deserve an A. But the BBB encourages industry criticism and resorts to interest rate cap proposals that would make the offering of these lending services financially unsustainable.
The outcome would be catastrophic and would leave vulnerable Americans worse off. When Georgia issued a rate capBorrowers bounced more checks, complained more about lenders and debt collectors, and were more likely to file for Chapter 7 bankruptcy.
Inflation isn’t going away, so helping unbanked Americans access resources to meet their unexpected needs is crucial. This is the message that minorities want to hear from the President and national leaders.