Living poor in Louisiana

from The Advocate

Fiscal realities make it tough to break poverty cycle

* By PATRICK COURREGES

Living poor is not the same as living cheap. People living in — or near — poverty and the people and agencies who work with them say that the add-on costs of poverty take a brutal toll on individuals and families who are just hoping to break even.

Breaking even is a growing concern throughout Louisiana and the United States as high-and-rising gasoline prices continue and people at all income levels brace for an economic downturn.

Higher fuel prices have driven up prices for other staple goods and services, and families are also dealing with increases in health and property insurance, as well as more-expensive housing.

The increased cost of living for everyone adds particularly to the strain on poor people, who already pay more for basic needs than their better-off fellow citizens.

The latest figures from the U.S. Census Bureau show Louisiana has the second-highest poverty rate in the nation (behind Mississippi), with about 19 percent of people in the state below the poverty line.

The Census Bureau determines the poverty line by estimating the essential financial needs of a hypothetical family based on the size and composition, and comparing that needed amount to income.

If the income is less than the need, the individual or family is below the poverty line.

With Louisiana’s population of about 4.2 million, that translates into more than 800,000 people in poverty.

Studies and information from people who work to help low-income families every day show that the poor pay more than their higher-income counterparts for many things — including interest rates on cars and homes, groceries and cashing paychecks.

Lorna Bourg, executive director of the Southern Mutual Help Association in south Louisiana, said the extra costs that go with poverty are real and serious.

“Poor people absolutely, in my experience, in every inch of the way, pay more for everything,” she said.

Bourg, whose organization is based in New Iberia, said poor people are not unwilling to work or help themselves.

“Most poor people that I know are working poor,” she said.

While Bourg’s group works mostly with the rural poor, Judy Watts, president and CEO of the New Orleans-based Agenda for Children, deals the poor in a more-urban setting.

Watts said, urban or rural, many problems are the same for both groups — such as access to the low-priced necessities, such as groceries.

“Poor people don’t have a way to get into big grocery stores, so they shop at the corner stores,” she said.

Bourg’s organization works to educate people in poverty about financial realities and helping them access affordable housing — which she says is a key to financial stability.

Watts said work has been more plentiful and better-paying in New Orleans as the city and state rebuild from 2005’s Hurricane Katrina, but the scarcity of housing and the resulting increased cost have added problems that far outstrip the boost in job prospects.

Bourg said that home ownership is not a complete solution to poverty.

She recalled one person the association helped who had managed to buy a home but went to a rent-to-own business to buy a refrigerator because she did not have the money to buy it outright.

“By the time she was through paying for that refrigerator, she’d paid about $5,000,” Bourg said.

Rent-to-own businesses operate by leasing furniture or appliances for a set period, usually a year or more, after which the customers own the furniture or appliances.

Consumer advocates question the rent-to-own business model because customers end up paying much more in such a transaction than they would in a direct purchase.

Paying more for basic necessities is a constant in the lives of the poor, said Valerie Keller, director of Lafayette’s Acadiana Outreach Center.

The center works with homeless people to help return them to self-sufficiency.

Keller said the problem is not a hard one to see: “Drive down a low-income neighborhood, think about what you’re going to see, as compared to what you’ll see on a middle-income street,” she said.

Commercial sections of a middle-income district will feature such things as banks, furniture stores and big-box department and grocery stores, Keller said.

“If you drive down a low-income street, instead of banks you’ll see a payday-loan place,” she said. “Instead of a furniture store, you see a rent-to-own. You have a small grocery store, which has a higher price for basic food items.”

Beyond that, Keller said, people living in poverty who manage to pull enough money together to finance a home or car generally pay higher interest rates and higher insurance rates because their credit rating tends not to be good.

Living in the trap

Clement Mire, a 25-year-old father of three, knows about the extra load people in poverty bear because he’s gone all the way to homelessness and is now trying to work his way back up.

He is working with the Acadiana Outreach Center in Lafayette to learn to better manage his money and keep himself out of financial trouble.

But Mire said he remembers traps he has fallen into and knows he still has work to do.

“We barely get by,” Mire said.

He said that, in the past, he had been unable to open a bank account, forcing him to go to check-cashing companies that charged a portion of his paychecks to cash them, paychecks that already had plenty of calls on the amount.

“It’s outrageous,” Mire said.

He said that he looked to a rent-to-own business for a refrigerator once, and found that, while the down payment was only $150, the addition of $90-a-month notes for 18 months meant he would have to pay a total of more than $1,700.

Mire said other options to pay for needed household items were slim, however.

“My credit was so bad it was like I couldn’t go to the bank and get a loan,” Mire said.

He said he and others in similar straits must sometimes turn to payday loans to borrow small amounts of money, despite dangerous short term and relatively high interest of such loans.

Payday loans are short-term loans with no credit check, usually payable in full — plus interest — within about two weeks.

The loans are normally for $300 or less, with the interest on the payback in the $40 to $50 range.

Watts said the problem with payday loans is that they don’t necessarily stop after one paycheck.

She said that someone taking out a payday loan of about $255 can routinely end up paying back more than $850 before breaking the cycle.

Bourg said payday businesses are a example of “predatory lenders” — companies that offer loans that not only have higher interest than mainstream loans for people with shakier credit, as “subprime” lenders do — but loans with interest rates that, projected over a year could mean paying back the amount of the original loan several times over.

Representatives of payday-style lenders have argued that the claims of high interest are misapplied to what is essentially a two-week loan, and that the service, used responsibly, helps people with short-term cash needs.

Bourg said payday loans often get rolled over, meaning that customers continually re-borrow the original amounts and pay the interest fees because paying the loans back would take a large part of those paychecks, leaving insufficient money for other bills.

“That’s a bad cycle. They like to roll over people’s loans,” she said. “It goes on and on, so they never get out of it.”

Watts said that the Legislature has acted to restrict payday lenders and the interest rates they can charge, but enough loopholes still exist to make payday loans a continuing problem for people who get caught in that cycle.

Mire said that, even though he’s learned the pitfalls of payday loans, he still has had to use them when he’s in tight financial spots.

Bourg said there are few options available to people without good credit who need $100 or $200 just to get through a month’s bills.

“Where do you get $150 or $250? There’s almost no bank you can walk into and get such a small loan,” she said. “When people are desperate they do desperate things.”

Keller said the payday loan cycle is part of a broader problem of the poor: pushing more debt forward so they can meet short-term needs.

“It can seem like an overwhelming spiraling downward cycle,” she said. “At some point you’re not living paycheck to paycheck, you’re living payday loan to payday loan. It seems like there’s no way to get out.”

That frustration can lead to despair and sometimes to drug or alcohol abuse, Keller said.

“You end up with people who feel they can never get ahead,” she said.

Taking a toll

Keycia Manuel knows about working hard to hold on to the little she has had.

Manuel, 33, is raising two sons on her own and has worked two jobs to keep them fed and housed.

Even doing two jobs did not cover all costs, when such things as gas for transportation and day care were factored in, she said.

“I was still living paycheck to paycheck,” Manuel said.

She said she was living so close to the edge that she once had to take out an anticipation loan on her federal tax refund to get the money for an overdue tune-up to keep her car running.

Manuel said she was charged $250 for that loan.

Manuel said when she bought the used car, her credit was not good, and she had to put up a hefty down payment. Even so, that down payment did little to cut the interest rate she paid.

That increased the pressure to manage the costs of living and raising her children.

John Milton, a Lafayette attorney who often deals with clients on the lower end of the economic scale, said he’s seen clients who have dealt with the scenario Manuel describes in trying to get transportation — including one client who ended up paying 31 percent interest on a used-car loan.

He said he also sees clients drawing Social Security who are so deep into the payday loan cycle that they sign over almost their entire Social Security benefit to loan companies every month.

“I have had some clients who have borrowed from seven or eight different payday loans at one time,” Milton said.

He said one client had only $40 to $50 left each payday after paying off the loans.

“The poor keep getting poorer,” Milton said. “So many people don’t have bank accounts. People with poor credit can’t even open bank accounts.”

He said that leaves such people at the mercy of check-cashing operations that charge a percentage to cash them.

“How are we going to get out of this rut when the number of people in poverty is staggering?” Milton asked. “We’re not talking about people who are not working. We’re talking about people who are working every day and just can’t make ends meet.”

He said the working poor fall farther and farther behind and see no way of making good on their debts and obligations.

Milton said many people judge poor people who have made bad financial decisions from an outside perspective. These people have the advantage of distance and knowledge of the likely long-term results of poor short-term money decisions.

He better-off people should learn to see the decisions people in poverty make from the perspective of the people making the choices.

Single mothers barely paying the bills still dream of giving their children the nice things they see others have, Milton said.

“When they do get a break and she can give her children something she knows they’ve been longing for, it’s irresistible,” Milton said. “The pressure that’s on a mother who is impoverished is great, and it influences the propensity to make bad financial choices. It’s not just about whether I can afford it. It’s also about the pressure of ‘I want to provide for my children.’”

He said better-off people tell poor families to save, but that’s tough when so much of a family’s income already has calls upon it.

“It’s so hard for the poor to save 10 percent of their income,” Milton said. “How do you say that to a person who never has enough to pay the utility bills?”

Wider impact

Keller said she also deals with people for whom saving the rule-of-thumb 10 percent of each paycheck seems beyond their capacity.

“It’s not easy to do when you’re so far behind you can’t imagine saving,” Keller said.

Keller said that saving and general financial literacy — the understanding of the pitfalls and advantages — are the cornerstones of helping people out of poverty.

They need to know not only the effects of giving in to bad choices but what programs and agencies are available to help, she said.

“There are loan programs, government programs, that go underutilized,” Keller said. “Some of the solution goes to making the connections.”

Bourg’s organization deals both in financial literacy and working to help low-income families use home ownership as a building block to financial stability.

She said battling the situations in Louisiana that promote poverty is crucial for more than just the poor. Bourg said the high poverty rate hurts the state’s ability to compete for business expansion and relocation to the state.

“Companies don’t like to open up businesses in a state where such poverty exists, because they know the tax bills will be high,” she said.

Watts said a final trap exists for people and families trying to break away from poverty in the state — one that she and her colleagues call “the cliff.”

The “cliff” is the sudden drop-off of financial and medical benefits families hit when they improve their circumstances and lose eligibility for such programs all at once.

Watts said that some people and families can actually find themselves worse off financially when benefits drop away faster than pay rises.

She said that programs such as food stamps and Temporary Assistance to Needy Families — formerly known as “welfare” — drop benefits entirely when an individual or family begins earning more money.

“If you get a job, you’re cut off,” Watts said.

She said her group is fighting at the state level not only to make that drop-off in aid more gradual, but also to find tax relief and other breaks that would allow poor people to hang on to more of their money.