Though it sounds like a cruel joke, the fact is that being poor in the UK can be very expensive. Even though the economy is supposedly in recovery, many families and individuals still aren’t feeling that recovery. However, according to an Office for National Statistics (ONS) report released in May of 2016, people who fall below the poverty line in Britain have a greater chance of seeing their fortunes improve than in any other major European country. So there’s that. Still, a closer look at the true costs of being poor in Britain is in order, as well as a glimpse of some ways that the income-challenged can cut costs and improve their lot.
“The poverty premium”
According to a study released in late 2016 by the Personal Finance Research Centre (PFRC) at the University of Bristol, poorer people pay more for essential goods and services – literally a poverty premium – that costs individual households an average of £490 per year. Not all poor families pay the same, of course, but virtually all families face some degree of additional expense, merely because they are poor.
For example, economically disadvantaged families often have to purchase the lowest-priced items in any category, which end up costing more over the long term than their more expensive counterparts. Some examples are appliances and automobiles, wherein less expensive models cost less because they tend to be lower quality, and not designed to last as long as pricier models. The same applies to such seemingly inconsequential items as cleaning products, whose cost at the time of purchase is lower, but which end up actually costing more because the consumer must use more of the products to get the same effect as a smaller amount of a higher-quality product.
In addition, poorer families typically live in lower-income areas, where major retailers such as supermarkets are not as available. As a result, many poor families buy groceries at small, mom & pop grocery stores that of necessity charge higher prices for individual goods, simply because they lack the purchasing power of supermarkets and other large chain operations.
Another example – this one especially costly – is demonstrated in the fact that most poor families rent rather than own their homes. Whereas they could likely own the home in which they live within 20 years, each month’s rent they pay represents savings or opportunity lost. At the end of that 20 years, the renters have virtually nothing to show for their biggest single cash outlay, month after month.
Caught in the trap of paying more for their most basic necessities, the cycle of poverty is, for them, self-renewing, and their chances of breaking that cycle are severely impaired. But even if you are financially challenged you still have choices in many cases, and you can keep costs to a minimum on many items just by comparison-shopping whenever feasible.
The power of choice
Financial products such as personal loans are one area in which it is easy for anyone with Internet access to comparison-shop. You can’t borrow your way to prosperity and we’re not suggesting you can, but if at some point you’re really in a cash crunch, you may need to borrow money. If you’re low-income or have bad credit, your choices may be somewhat limited, and you will still pay more in interest and fees to get a loan than will your more affluent countrymen, but it’s still important that you do your research and that you not fall for the adverts that target people in your situation.
There are different types of personal loans, and some deals are better than others, even with the short-term, high-interest payday loans which, incidentally, are no longer necessarily just for people with bad credit. Between the more stringent loan qualification requirements at more traditional lenders and the government’s having cracked down on the alternative lending industry to put an end to the predatory practices that gave the industry a bad reputation early on, payday loans have found a place in the financial mainstream. That said, it makes sense to use online loan comparison sites for the best rates and repayment terms. Just be judicious in your decision to take out any loan, and take care to pay the loan back on time so you won’t incur additional costs.
A loan won’t be your ticket out of poverty, but if you manage it responsibly it can improve your financial picture in the short term and even in the longer term.
Finding your way out
The Government as well as numerous non-government organisations in the UK recognise that poverty is a significant problem, and there are many programmes and schemes to address the issue. The Living Wage Foundation, for instance, maintains an annually updated calculation of what constitutes an actual living wage, as well as a listing of employers who pay their employees a living wage. It also provides information to employers to help them recognise that paying less than living wage actually hurts their businesses.
As things stand now, work is not the way out of poverty for many in the UK, but organisations such as the aforementioned foundation are striving to change this. And of course the Government is on it too, for what that’s worth.
If you’re like many people in the UK (and most readers of this blog, we reckon), you ultimately want to do more than just eke out a living. You aim to go beyond merely surviving and reach a point where you’re thriving. And you can thrive, even in a deeply challenging economic climate, if you assess your situation honestly, set realistic financial goals and steadily work your way towards those goals. Going from poverty to prosperity is rarely simple, but it is far from impossible.