Rental America: Why the poor pay $4,150 for a $1,500 sofa (2014)
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Why exactly is a family with a maximum of $25,000/year in (unreliable) income buying a new sofa that costs $1,500 upfront?
I make more than 4x what they do in reliable income and have no dependents, yet I got my sofa $300 used on Craigslist. These people need to learn some basic personal finance.
“Rent-to-own was basically all we could do,” Abbott, 33, said.
Yeah, I wouldn't do it either, but I'm not in their shoes and I don't need that $150 this week to make rent.
Meanwhile an entire industry is built that preys on people for whom this seems a good option. They're poor and they're misinformed - that sucks. And people make bad decisions all the time. But let's save our derision for the company gleefully charging a poor family four grand for a couch.
But when you're poor, you're more self-conscious about these things. What happens when your six-year-old son/daughter brings over their friends to play? Will they get made fun of for the old couch? What if there are hair lice in it? What if the kid gets hurt from it collapsing, and you have to take them to the doctor (which will cost hundreds out of pocket)? There are all sorts of irrational fears praying on the people in this situation.
The easy and cheap option if you have springs poking into the floor is buy a sheet of MDF for $9.25[0] and a 20" hand saw for $20 (or less) [1] and the spring-destroying-the-floor problem is fixed for under $30.
It breaks my heart that these folks are so financially illiterate that they dig themselves into such terrible debt.
[0] http://www.homedepot.com/p/Unbranded-1-8-in-x-4-ft-x-8-ft-S2...
[1] http://www.homedepot.com/p/Stanley-20-in-Saw-20-029L/1002432...
When we have another sub-prime style meltdown we need to bail the economy out of, we're going to be wishing we invested in our schools and added basic life skills such as personal finance to the lesson plans. It's certainly cheaper to bailout schools than financial institutions.
Anything else will fix a symptom, not cure the disease.
Having classes to teach people this in public schools sounds really condescending. Poor people can't be so stupid that they can't even learn from their own mistakes.
As for the condescension: let kids test out. We really ought to abolish this entire notion of a class moving between grades together at the same pace, it's arcane.
So, while I would scout for a used sofa, desk, etc... I'd splurge on a nice dinner with friends when I probably should have held back a bit.
The other thing, is there is this psychological oppression where people feel obliged to act like others in society. So you think in relative terms rather than absolute. If Jane has a new computer, well, so should I --even if there is no reason the three year old system is insufficient.
Keeping up appearances is a hell of a drug, to paraphrase.
Of course, that's with a 100 week term for a total of 4000$.
America values material possessions a lot and when you're actually poor, you can't afford any. Places like this dangle small "affordable" amounts to people who can't do the math. And a big part of why they might not do that math is shame.
Between the mental exhaustion of crippling poverty combined with physical exhaustion from working incredibly demanding jobs, there's not a lot of time to learn personal finance. Not to mention, there's just not a lot of resources to do so for the poor.
Wheres the disdain for predatory companies who prey on that susceptibility?
In my experience, pretty much anything anyone ever has ever said that starts with those two words can be dismissed out of hand.
EDIT: It's called hyperbole. But when you couple a "these people" with some sweeping, judgmental pronouncement about how the people in question are doing something stupid, wrong, immoral, &c, it becomes radically less so, and quickly.
"Normal" families buy new things too. "Normal" families don't scrimp and save just so they can have chairs to sit on, and beds to sleep in.
Interestingly, I neither have chairs in my apartment nor a bed. Nobody thinks I'm "abnormal" in this respect because I live in Japan. It is a bit strange that I work from home, program on an end table I borrowed from my mother-in-law and I sit on a stool that I bought for about $15 (admittedly new). But I started using that 6 months ago thinking I would upgrade when I needed to. Surprisingly I haven't needed to.
The expectation of "normality" is what is killing the poor. This is based on your culture. You need a bed. You need a sofa. You need a kitchen table. You need an oven. You need a car. You need a sensible desk to work on. You need a special work chair. You need cable television.
None of these things are actually needed in most cases. Possibly a person needs one or two of these things in specific cases, just like I need a computer to do my job. I don't have any of the things listed above and I'm not poor by any stretch of the imagination. My life seems perfectly "normal" to me.
Without trying to sound superior (which is really difficult because probably I am unconsciously feeling that way), the skills you need to live happily on a very, very low income are probably the same skills you need to have to make (and keep) a lot of money.
I suppose what I meant is that if you can live happily on $10K per year, then probably it will be very easy for you to get and maintain employment for a lot more. As well as meeting people who can burn through money at a ferocious rate, I've met (much fewer) people who can live happily in what most Americans would call poverty. Those people always seem to have much more money than they need.
It takes rare skills to live like that. The end result is that the poor have very little chance of bootstrapping themselves out of poverty (because if they could, they already would).
"You don't get rich by spending money" she used to say.
It helped that she grew up fairly wealthy, but her parents had pulled themselves out of abject poverty within their own lifetimes -- they still had the kinds of ingrained penny-minding skills they grew up with, but had used it towards positive effect.
For the first two years of my marriage, we sat on the floor, ate off of a re-purposed used coffee table somebody gave to use for free. For the first year we slept on an old mattress on the floor until in the second year we finally bought a bedroom set that was ridiculously discounted and that allowed us to move our clothes into some kind of organization.
It felt weird having friends over, since we couldn't offer them anyplace to sit but the floor, but you get over it.
> They were perpetually behind with their Buddy’s installments and had taken to skipping one week and then catching up, with a $5 late fee rolled in. To make matters worse, those payment trips to Buddy’s put them eye to eye with more temptations. One week, they added a smartphone to their order. Another week, some Samsung speakers. And suddenly, the weekly payments to Buddy’s were $110.
And more:
> By midday that Thursday, $51 of the $230 had already vanished, used for gas and cigarettes
They're already on the edge financially, to the point where even eating healthily is an issue yet they still buy cigarettes and add even more monthly payments for unnecessary technology.
Basic life skills like budgeting, saving money, paying taxes and controlling your debt really need to be taught in schools. Maybe add it to math. Teaching math with practical lessons benefits everyone.
Take boots, for example. He earned thirty-eight dollars a month plus allowances. A really good pair of leather boots cost fifty dollars. But an affordable pair of boots, which were sort of OK for a season or two and then leaked like hell when the cardboard gave out, cost about ten dollars. Those were the kind of boots Vimes always bought, and wore until the soles were so thin that he could tell where he was in Ankh-Morpork on a foggy night by the feel of the cobbles.
But the thing was that good boots lasted for years and years. A man who could afford fifty dollars had a pair of boots that'd still be keeping his feet dry in ten years' time, while the poor man who could only afford cheap boots would have spent a hundred dollars on boots in the same time and would still have wet feet.
This was the Captain Samuel Vimes 'Boots' theory of socioeconomic unfairness.”
― Terry Pratchett, Men at Arms: The Play
So these business are not really preying on desperate people, but stupid people with poor impulse control.
As you say, a business like this preys on stupid people. They are trying to be thrifty but have no idea how much things should cost or how to handle more than minimal amounts of cash. It's pure exploitation.
If you spend it right, you can get out of spiraling debt and save up for a better future, even with only 1000-2000 monthly income - but not while "lucrative" options like these tempt you into getting a new phone and a new tv when you really can't afford it.
It's hard to resist pointing out the obvious without sounding cruel and harsh, but regardless of what's fair and what's not, it's never right to spend outside of your means. That 1500 sofa sure does look nice and comfy, but you're trading away any chance at escaping your life in a trailer park if you buy it on a 1000/month salary - and that's without the 300% interest rate.
The problem is, stupidity in spending isn't restricted to a specific subset of the population. It's the reason why blue collar workers, white collar employees, lawyers, doctors, engineers, everyone can fall victim to credit card debt and wind up bankrupt and with nothing - even (or perhaps, especially) multimillionaire sports stars. You'll never have enough to own everything you see, but America makes it easy to obtain it anyway. A better car, a bigger house, a nicer education - just sign here, and it's yours!
Edit: yes, it's really (technically) possible to persevere and save your way out of even the most meager of salaries, even when opportunities are withheld from those that need it most. This article, "only a constant factor worse than optimal," written by someone that I suspect might be the smartest person I've ever encountered, illustrates the secret: https://www.mail-archive.com/kragen-tol@canonical.org/msg003...
The reasons behind being poor and staying poor are complex.
But one of the common themes is basically poor impulse control, and growing up seeing more examples of this than examples of what good impulse control looks like can be profoundly influential.
When my wife and I were first married we were among the poorest I've ever been. We had a very small, very spare apartment, and I wanted a couch...bad, because it seemed that we needed one. My wife (who grew up in a fairly wealthy family) simply put her foot down and we simply sat on the floor for the first two years.
It kind of sucked, but there was at least one-time where the money we would have spent on a couch ended up keeping a roof over our heads and she was proven correct.
The friends I grew up with, who remain poor, struggle to make rent, but have top of the line smart phones with expensive plans, buy new furniture constantly, have apartments full of sports memorabilia or expensive knife and sword collections and so on. Many of them have buried themselves into MMOs, often paying for multiple accounts and multiple computers to use them with.
I know people who got into a local college, decided not to pay the tuition so they could instead outfit themselves in head-to-toe suits of armor so they could walk around the local Renaissance festivals, and then lost the entire suit when they couldn't pay the bill on the self-storage place they were storing it all in.
Not sure whey these people just don't buy used furniture.
Obviously, the difference is that my "hourly" wage is a lot better then minimum wages and I've demonstrated that I'm credit worthy over the last 16 years I've had access to credit.
As they say, it's a particular segment of poor.
I personally shop at thrift stores and take hand-me-downs. I buy cheap laptops and load Linux.
But all this takes time. The three-part-time job segment of workers can't do that and winds-up in the arms of these people. It almost makes that third job worthless - the problem is people want a lifestyle where they feel middle class.
These people are buying a $1500 sofa when there are used alternatives readily available.
EDIT: I am not saying this should be illegal. Clearly, Buddy's is offering a useful service to people who are turned away by other establishments. But there needs to be some regulation. You shouldn't be able to charge $4500 for a 1500$ couch.
The more likely you are to pay back a loan, the better your interest rate, as the creditor is assured they will make a complete return on their investment.
When the chance of you disappearing or declaring bankruptcy is high, you are considered high risk and so your interest rate is increased to make up for that risk. At least that is how I understand lending.
I really don't understand why people don't get this. If you have $100 to lend and want a return on your investment and you had to charge everyone the same interest rate, would you lend it to the person with better credit or worse? Obviously better credit. So if you want to lend to the person with worse credit you are going to charge them more because of their history they will default more. The risk is priced in to the interest rate.
Because credit isn't an indicator of future repayment (income is more so). The amount of people who defaulted on their home mortgages when they were underwater after the housing collapse who also had good credit prior is not insignificant.
Anyway, they defaulted because they were underwater on the mortgage. When you owe 50% more than your home is even worth, bankruptcy looks like a viable option for many people. Same reason lots of people sold their 401k/IRA/investments. Fear has a fun way of becoming self-fulfilling.
Credit rating is explicitly intended to be an indicator of future repayment. That's the whole point of the system.
Brainwash them, instill the notion of managing money more productively throughout schooling so it becomes second nature. The cold reality of economics could even have the secondary effect of 'scaring' (rather bring reality to light) into taking their education seriously. As opposed to, my parents make me go, I'd rather drop out, school isn't for me --a mentality I saw when growing up. Maybe kids are wiser these days.
- when an American wins the lottery: they spend the money, get a temporary increase in happiness, then it drops back down
- GiveDirectly gives an extremely poor person a few hundred dollars: they spend it on things that improve their earnings and reduce their hunger
How can both of these things happen in the same world?
Many of the GiveDirectly recipients I've read about are so poor they spend the money on things like sheet metal roofs for their houses (to replace the thatch) so they don't leak and fall apart in a year. That's a level of poverty much of the American poor don't have to contend with- it's been a hundred years since many Americans had dirt floors, and many more than that since many American houses were thatchtops.
GiveDirectly, and similar cash aid programs, generally do not have that kind of perverse selectivity.
(Upvoted to express how much I care.+)
+ sad joke