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Monday, 9 July 2012

Preying on the Poor

It's one of the sadnesses of real economics that those least able to afford it often and up paying the most. More often than not it's not malicious; if they don't have a car to reach the supermarket, or don't have the cash to buy a pair of shoes for £150 that will last ten years rather than a pair costing £15 that will last six months, it's just unfortunate.

Then there are firms that deliberately fleece the poor buggers. The loathsome Brighthouse is such a one, as recorded by the Indie this morning. But so too are the mobile phone companies with HP deals on new phones disguised as airtime contracts, not to mention the 'payday loans' sharks, all operating this side of legality. Whilst the middle classes are more immune to the lure of the latest iThing or Wastestation V and anyone with any appreciation of visual quality and rendition will realise that your old CRT television has a  picture equal to the latest faddy LCD tvs, the poor are often gullible dupes, early adopters.  

No polemic, really, just a sadness that this should be so.


Nick Drew said...
This comment has been removed by the author.
Nick Drew said...

Indeed. It's one of the very few sound grounds on which subsidy can form part of energy-related policy - viz for cost-effective domestic energy savings measures - and why it's a pity the government's Green Deal has been so ineptly handled

You mention distance from supermarkets: it's also sadly the case that the financially (and educationally) impoverished seem only to be able to think of eating junk, and - with what £££ they do have - junk in vast quantities, bidding for a sort of slow-motion Darwin award via Type-2 diabetes

Nick Drew said...

a post-script on your first sentence: many years ago (before she entered Parliament) Ann Widdicombe wrote a pamphlet entitled Second Class Single in which she bemoaned the fact that as a single person she couldn't get the cost-saving benefits of buying in bulk

her proposal was that single people should be subsidised accordingly

(and we give these people seats in Parliament...)

Jackart said...

A payday loan from wonga is cheaper than a bank's unauthorised overdraft charges.

If you're giving goods to the poor on credit, you often don't get it all. Paying twice the list price sounds about right.

Microfinance has been a major driver of Growth in the third world. Why not amongst our poor?

DeeDee99 said...

'Poor' generally means badly educated and quite frequently 'ignorant.'

Information about the cost of hire purchase is freely available, but you need a basic grasp of arithmetic and compound interest to understand the mark-ups that are being levied for the privilege of "have it now - pay for it later."

Another parasite company, advertising with images of nice reassuring elderly folks is Wonga. Short term loans, at an APR of 4241%, yet they are apparently thriving.

At school in the 60s/70s, we were taught arithmetic - including domestic arithmetic. The latter included pratical number-crunching that any householder needed to know. These days they attempt to force maths on kids who simply can't cope with it and will probably never need it; but neglect the practical application of numbers which you need to survive - particularly when on a very tight budget.

Our whole society and economy is geared towards consumerism. Until that changes and state education returns to basics and teaches children arithmetic, they will fall prey to the legal scams that are operated by the likes of Wonga and Brighthouse.

Johnm said...

Microfinance at 2750%.
Gimme none of that.
Jesus drove the money lendes out of the temples for charging less than that.
Now they own not only the temples, but hour ass too.

Johnm said...

Iphone keypad.
What else can I say !

Anonymous said...

There's a certain lack of arithmetic grasp in some of the comments above. The interest rate for short term loans is NOT 4750% (or whatever figures were used above by DeeDee and Johnm). That's the Annual Percentage Rate, which was designed to allow cost-of-credit comparison between different longer-term credit arrangements.

The APR is simply outmoded, because payday loans didn't exist at the time of the Consumer Credit Act. But it has to be calculated by law, and ends up annualising 30 day loans.

If you borrow for short periods, especially small sums, it's always more expensive - setup costs are pretty much fixed whether you're lending for 30 days or 12 months or 5 years. That's why there's a fee charged with these loans - and that gets us right back to APR calculation, which is sensitive to up front fees and costs.

Even in more mainstream lending, would you expect to pay a the higher rate for (a) a residential mortgage over 25 years or (b) a six month bridging loan while you waited for a sale to go through?

Dave_G said...

On a more basic level we're ALL being fleeced by the application of open market pricing on items that are ESSENTIAL to an affordable life - energy being the biggest culprit.
SAVING energy amounts to nothing as the savings you make are immediately counteracted by price rises as the utilities maintain their profit margins and dividend levels. They are even trying to make the most BASIC commodity of life (water) face the same pay scales by forcing the introduction of water metering.
Society (and the economy) would benefit enormously from nationalisation of these essential items - and I'm NOT talking about the over-staffed, over-paid, inefficient nationalisation of the 50's/60's but a modern take whereby the customer gets the product at COST (including whatever costs are necessary to upgrade/maintain the services). Depriving a few privileged shareholders for the sake of humanity isn't 'communism' or anything else other than common sense and a way to restore both our economy AND peoples level of lifestyle.

Anonymous said...

Twas ever thus in a recession. The companies that do well include:-

Loans companies
£ shops
Betting (I particularly hate)
Christmas Clubs (Park anyone?)
Cheap frozen foods
Pawn shops
Charity shops

I should know - one of what was once the nicest streets in my town is infested with these businesses.

Coney Island

George Speller said...

Did you mean Hi-phone keypad? :-)

TrT said...

Paypay loans are frequently cheaper than overdrafts, true, technicaly, although it varies case by case

But borrowing to buy a PS3 is NOT microfinance third world style.

Borrowing $500 at 50% interest to buy a new tractor implement to grow more crops, or install a solar panel/battery to power a light so you can work indoors at night is quite different to buying a playstation at 300% interest.

I dont understand your hatred of phone contracts, I've just started my second, under both, it was actually CHEAPER to take the phone on a £15-£20 contract, than to buy the phone outright, and then find a phoneless contract.

I paid £17 per month, for two years, for a £10 per month contract, and a £300 phone.
Thn again, I didnt go for a "prestige" phone

Woodsy42 said...

I fail to understand why anyone would ever buy from a firm like Brighthouse. I would go without and refuse to pay such extortinate markups as a matter of principle. It's not as though lack of a domestic appliance is life threatening!

Nick Drew said...

@Dave_G, a modern take whereby the customer gets the product at COST (including whatever costs are necessary to upgrade/maintain the services)

you give anyone a monopoly (state-owned or private) and you'll be amazed by what he tells you the 'cost' of providing your services is - and you'll not be at all well placed to prove him wrong

we've been there, done that, and were royally ripped off by the 'at cost' merchants

Anonymous said...

"Loathsome Brighthouse"

Yes, a very apt description of said emporia - not quite a faustian pact but nigh on to one.

TrT said...

Brighthouse really do take the piss.
Not only do they charge you 30% interest for 5 years, they overcharge you for the bloody thing in the first place!