The high price — and limited protection — of poverty

Opinion

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This article was published 23/11/2024 (318 days ago), so information in it may no longer be current.

People experiencing poverty take care with their finances, cannot afford the basics and face formidable barriers. That’s what we’ve found after researching this topic for several years.

Kateryna (a pseudonym) is a single mom with an adult child who is incredibly frugal and tracks every dollar she spends. She lives in inner-city Winnipeg, juggles two part-time jobs, earns well below the poverty line and cannot afford the basics, like a new winter coat. The coat she wears now keeps her warm but looks terrible. She might be able to get a better job but is reluctant to make a significant move, because of bad experiences she’s faced in the past (such as sexual abuse from a supervisor). Moreover, given her low income, she pays a lot ($17 per month plus other fees) for bank services but, without internet, she has a 20-minute bus trip to get to a branch where staff are not helpful and few services are available.

That people in poverty are frugal is not surprising. With low income and few assets a person must be careful with their money. Yet study after study reinforces a social stereotype that poor people are financially illiterate. The reason is that these studies ask people about interest rates, inflation and risky investments. Since people in poverty focus on the immediate term and have few assets or liabilities, they don’t need knowledge like that. They need knowledge about making it day-to-day.

We are completing a multi-year research project, the Canadian Financial Diaries, that worked with 80 low- and modest-income individuals and families for six to 12 months. Individual diarists tracked their finances and shared their information with us as they talked about their financial practices and challenges.

What we found was the diarists were careful with their finances. We noticed most diarists most of time would deliberately focus their spending on their needs (food, housing and utilities) and spend on wants only when they were able. The lowest-income diarists did not have formal credit, but relied on peer lending from family and friends to make ends meet in a crisis. Before joining the project, many diarists controlled their spending by carefully tracking it.

Yet the diarists in deepest poverty seemed to face the highest prices for their basics. For instance, diarists in Winnipeg’s inner city who lack a car either grocery shop locally and face higher prices or take the bus to another neighbourhood and face the price of the bus trip, not to mention the challenges of travel with kids for a single parent.

The higher price for poverty is really striking when looking at their banking. Often diarists have to travel some distance to get to a branch and pay $20 per month for a bank account, but have limited or no access to credit. To access credit they might end up at a pawnshop, payday lender or instalment lender. Many are involved in peer lending with family and friends, which avoids dollar fees but means the pot of available funds is very limited.

Diarists living in poverty face weak social protection.

Employment and Income Assistance, Manitoba’s social-assistance program, offers financial support that is generally below the official poverty line. This means people reliant on this form of social protection are living in poverty and are unable to afford the basics. This will lead them to focus their finances, and much of their lives, on the immediate term and prevent them from making changes that can enable getting out of poverty.

Kateryna could have increased her work hours in the formal sector but past trauma and limited means acted like a brake. The relief program the federal government implemented, Canada Emergency Relief Benefit, offers another stark example of weak social protection for the poorest. Diarists from Phase 1 who were previously employed enjoyed the CERB benefit but diarists who were unemployed were ineligible.

And yet these unemployed diarists faced higher costs for groceries and other costs like hosting family members.

We need to reconsider our assumptions and policies affecting people in poverty.

First, rather than stigmatizing people in poverty, we need to focus on their assets and capabilities. Next, we need to think about public social protection as a form of investment that enables people to move out of poverty. Raising EIA above the poverty line, and reimplementing Rent Assist would be moves in the right direction.

Finally, people in poverty have financial needs, and our big banks, given their oligopolist and imperfectly competitive market, need to be required to provide a full set of financial services to all Canadians, including to the most vulnerable.

Jerry Buckland is a professor of economics and international development at Canadian Mennonite University; Wendy Nur is the research co-ordinator for the Canadian Financial Diaries research project.