How being poor can make you bad with money

Some Americans' favourite frugal shopping tips, like buying in bulk, aren't equally accessible across all income brackets — and it's a pervasive aspect of living with poverty in modern society.

The authors of the study looked at toilet paper purchases across seven years and 100,000 households. Low-income households bought the household staple on sale far less often and made many more trips to the store. Buying in bulk is often a privilege of the wealthy, and retailers seem to prey on less-fortunate shoppers with higher unit prices and smaller packages. The ultimate conclusion was that low-income shoppers pay about 6% more per sheet of toilet paper than high-income households. To make things worse, people who can't afford to buy in bulk often select premium brands, paying both brand markups and higher convenience store prices.

One redditor, LOOK_AT_MY_POT, described an interesting contrast between his and his friend's shopping habits. The friend buys poor quality two-ply toilet paper one roll at a time from gas stations, while he buys triple-ply in bulk at a better price per roll. He worked out that he saves more than $100 per year and uses a better product than his friend. Combining all household and cleaning products, he figured his friend pays at least $1,000 more per year on basics like toilet paper, paper towels, soap, detergent, etc. With a lower salary and a demanding schedule, his friend is consistently unable to save money to create a better quality of life. This is a classic example of the toilet paper problem.

Another redditor had some harsh things to say about poverty and purchasing habits. Citing a book called Scarcity by Mullainathan and Shafir, the commenter pointed out that the psychology behind shopping in poverty can have disastrous effects. Poverty alters psychology when you're living on the margin and have to make tough decisions with your money. Your decision-making suffers when you are stressed, sick, disabled, under-educated, and hungry. Buying the nearest toilet paper you can find is often an immediate need, but it's also a good metaphor for the experiences of people living in poverty.

When you have a reliable car to drive to a decent grocery store or somewhere like Costco and you have time in your schedule to make consistent trips there, your life is just easier. Buying things in bulk saves money, but you need money and the storage space in the first place to make it all happen. If you have to buy your essentials within walking distance, life is immediately harder. Retailers price their goods based on many factors, such as mark-ups for convenience. If you drive to the best store and buy in bulk, the savings in money, time, and effort go a long, long way.

Banking and credit also figured prominently in this thread. People living in poverty often don't have access to the simplest financial products. Bank accounts, debit cards, credit cards, and access to cash withdrawals are all easy to find when you have a good income. The poor often lack these resources, further limiting their options to find bargains, lower their costs, make investments, or even to put money aside in a safe place. Banks are keen to slap late fees on your account when you need money the most- while the wealthy enjoy free banking, easy credit, and convenience at every turn. It's unfair, but it's a common paradox in the world of banking. The poor pay more and the rich eat for free.

The University of Michgan study offers one more interesting piece of information. The authors noticed that spending patterns in the lower income segment changed dramatically around the date of their paycheque. Access to liquidity (i.e. spending money) is a key part of buying in bulk and economies of scale. When you just get your paycheque, you can afford to buy in bulk. People living in poverty are usually keenly aware of their bank balance and how much cash they have on hand, so they spend their money "smarter" when they know they have it. This is a fascinating phenomenon that illustrates how credit could help some of these people smooth out their liquidity over the days between paycheque.

The high cost of poverty is a tough issue for society, and we are all judged by how we treat those less fortunate. In my city, the government recently introduced a low-income bus pass to help with the high cost of living for people in poverty. Programs like this can help, but the unfortunate realities of economies of scale and retailing practices aren't going away anytime soon.