It’s expensive to be outside the financial mainstream

Millions of people have come to the United States, welcomed by the famous words inscribed on the Statue of Liberty:

Give me your tired, your poor,
Your huddled masses yearning to breathe free…

Well, breathing may still be free, but everything else has a cost associated with it. And, the dirty little secret is that the less money you have, the more expensive things are (and not just as a percentage of income or personal wealth). Take, for instance, financial services. If you have a million dollars, banks fall over themselves to give you free service and make sure all your needs are met. But, if you live paycheck-to-paycheck, many banks would prefer if you don’t even walk in the door.

This lack of welcomeness forces many people to the underbelly of the financial services world: to check cashers and payday loan shops. And the numbers of people in this predicament are staggering: “Nearly 10 million U.S. households do not have a bank account. This represents 9.5 percent of all U.S. households, 22 percent of low-income families, and 8.4 million families earning less than $25,000 per year who do not have either a checking or savings account. ” [source]

Check cashing and payday loan establishments are some of the most predatory businesses in the world. They charge exorbitant fees for the simplest of financial services: giving people access to their own money! Check cashing fees, at least, are regulated by each state. A typical maximum fee is 5% of the check value, although some states (NV, UT, MA, and the non-state Washington DC) have no limit on fees.

Would you stand for having to pay 5% just to cash your paycheck? Neither would I, but millions of people have no choice.

And heaven forbid is someone has an emergency and needs some additional cash before their next paycheck. As was highlighted recently on CNN Money, payday loans carry the “low, low interest rate of 396 percent,” although I’ve seen other reports placing the number over 500%. Granted, these are high-risk, short-term loans, so the interest rates should be higher than would a typical prime-targeted financial product, but still, the only other business that enjoys margins like this landed Al Capone on Alcatraz 75 years ago.

Yes, it’s expensive to be poor, but it doesn’t need to be that way. Everyone deserves access to high quality, appropriately priced financial services. The cure for this ill is a more robust ecosystem for the not-so-well-to-do demographic. But, more on that later. (Spoiler alert: it might just include a mobile component.)