How Much Harder Can We Make It to be Poor?

Once again, I find two unrelated articles resonating in my head: an opinion piece in Sunday's New York Times  Sunday Review section, "No Money, No Time, by Maria Konnikova (here) and a Jessica Silver-Greenberg and Michael Corkery article (here) in today's Times, "Bank Account Screening Tool is Scrutinized as Excessive".

The Silver-Greenberg / Corkery article begins with the account of a young woman who has been unbanked, because she "is one of more than a million Americans who have been effectively blacklisted from the mainstream financial system because they overdrew their accounts or bounced a check — mistakes that routinely bedevil young and low-income consumers, financial counselors say."

The young woman in question did pay back "the roughly $700 that she owed, [but] a record of her youthful transgressions remains in a vast private database, preventing her from opening a new account."

Such databases, used by Bank of America, JPMorgan Chase and other big banks, were intended to weed out serial fraudsters. Now, regulators say, banks are screening out potential customers and swelling the ranks of the so-called unbanked — the roughly 10 million households in the United States that lack even a basic bank account.

According to today's article, the New York attorney general's office is looking into the practice. A single error has significant consequences, as "negative marks typically stay in the databases for at least five years".

Without access to a checking account, many have no choice but to rely on costly alternatives for even the most basic transactions, like paying bills, withdrawing money and wiring funds. At first blush, the fees can seem relatively small: $15 to cash a check, for example, or $1 to place a money order. For people already living on shaky financial footing, however, the costs can quickly add up, eroding a chunk of their paychecks before they even have access to their cash.....

Such fees can make saving money, which is critical to building wealth and long-term financial stability, almost impossible, financial counselors say.

So here's another way we make it more difficult for the working poor to "bootstrap" themselves out of poverty. Thanks, banks.

And it's not just the additional cost (and the time required to get to the check-cashing storefront or the payday lender). There are other risks as well:

For low-income Americans who may already be living in crime-ridden neighborhoods, carrying around money from a check casher can be dangerous. When the Pew Charitable Trusts conducted a two-year study of 1,000 families in Los Angeles that lacked bank accounts, researchers found that one in five lost money — on average $729, or the equivalent of two weeks of household expenses.

All of these can trap the poor. But there's more to the story, I know, since I'd also read the Sunday Review piece on the relationship between money and time. Konnikova spoke with a Harvard economist, who explained that there are really three types of poverty:

..."There’s money poverty, there’s time poverty, and there’s bandwidth poverty." The first is the type we typically associate with the word. The second occurs when the time debt of the sort I incurred starts to pile up. [The reporter had mismanaged her deadlines, and therefore had to ask for an extension to complete this piece.]

And the third is the type of attention shortage that is fed by the other two: If I’m focused on the immediate deadline, I don’t have the cognitive resources to spend on mundane tasks or later deadlines. If I’m short on money, I can’t stop thinking about today’s expenses — never mind those in the future. In both cases, I end up making decisions that leave me worse off because I lack the ability to focus properly on anything other than what’s staring me in the face right now, at this exact moment.

In other words, being short of time is one thing when you're rich -- you can buy someone else's time to take the pressure of yourself (think a nanny to keep an eye on your kids, an event planner to organize your next social event, a landscaping service to mow your lawn). But if you're poor? No such luck. And the stress of that bandwidth poverty can lead you to making very bad decisions.

So the poor don't just make the same mistakes that we all make: they make worse ones. Konnikova continues with examples drawn from a research game run by the economist and two psychologists, with participants assigned to be "poor" or "rich":

...When the experimenters showed players a preview of the next round’s questions, the rich ones took advantage of the edge, performing better over all, while the poor acted as if they couldn’t see the previews at all. They were so focused on operating under scarcity that they couldn’t think their way through to a strategy — or, indeed, even realize that an opportunity to do so was available. 

We all have only a limited attention span. When all the pieces of your life are held together with duct tape, and that tape keeps threatening to split, that's where your attention goes. Not on what you could do two years from me if you husbanded your resources more carefully. I'm tired of hearing the poor called "shiftless" when we've allowed the game to be stacked against them.