The poor we may always have with us, but must they always get a raw deal? That’s the question award-winning journalist Gary Rivlin poses in Broke, USA. “Poverty, Inc.,” is the somewhat loaded term he uses to describe financial services firms that cater to the working poor—people in American households making up to about $30,000 a year. Normally these folks scrape by, living paycheck to paycheck. But once a year they are flush with cash. Thanks to the Earned Income Tax Credit, they receive lump-sum payments from the federal government, often equivalent to two or three months’ salary.
There are many reasons for persistent working poverty—from single parenthood to injury and disease to just plain awful luck. But this once-a-year payday has arguably made things worse by encouraging poor habits. Instead of trying to conserve some of their scarce resources to build capital or deal with unexpected expenses, poorer Americans are more likely to spend every penny of their current paycheck before the next one comes. They rely on their income tax “refunds” (an inaccurate term because poor Americans receive back far more than was withheld from their paychecks) to pull them out of the financial sinkhole.
To get by between paychecks or to absorb unexpected expenses (e.g., a broken-down vehicle), they often need to borrow money. Because of their meager incomes and cyclical spending, they can’t get the sort of credit that is available to America’s middle class. That’s where Poverty, Inc., comes in. In Rivlin’s telling, that’s also where the problem starts.
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