An Increasing Number of Struggling Americans Are Turning to Check Cashers and Payday Loans

Lambert here: I’ve always hated the phrase “financially literate.” The author says we need “more regulation of banks.” We do, but to nobble the “alternative financial services” “industry, so called, we need a Post Office Bank. (Had the Democrats rolled out a proposal for a Post Office bank, it would be a lot harder for the administration to privatize it, but lol no).

By Valerie Vande Panne of the . .

There’s an idea in America that if you are “financially literate,” there is a specific way you bank: You have a checking account and a savings account at a big-name bank. You have your checks from your employer directly deposited every two weeks, like clockwork, and you save at least 10 percent out of every check, until you have enough saved to cover living expenses for six to eight months. You contribute to a 401k your employer matches, and your health insurance—which your employer pays for—offers full coverage for you and your family with, perhaps, a $30 co-pay.

The problem with this scenario is that, increasingly for a growing segment of the American population, it is a total myth.

The reality is that a growing number of Americans don’t have this type of employment. Mainstream banks are expensive to use. And the middle class has been rapidly pushed—well, down.

Enter Lisa Servon, a professor and chair in the Department of City and Regional Planning at the University of Pennsylvania. She’s also the author of , an at-times startling look at the way Middle America is surviving in an increasingly tumultuous U.S. economy.

Servon started her research on specifically how the middle class is using check cashing and payday loans when she started reading about how low-income people didn’t know any better. The theory—which you are probably familiar with—says that the poor and people of color don’t use mainstream banks because they aren’t financially savvy. They are, the insinuation goes, stupid about money.

“Something struck me as off,” with that theory, Servon told the Independent Media Institute in a phone interview. “I knew people weren’t stupid. Or wasting money.”

So, Servon started looking at how, and why, people use check cashing and payday loans.

In a nutshell: Most people are using them because they’re not making a high enough minimum wage, and the economy is unstable—the perfect environment for the “alternative financial services” industry to flourish in.

The mainstream often sees this type of financial model as “something that’s wrong with the person using it,” Servon says. “I think there has been a belief people start as unbanked [not using mainstream banks] and move to banked and then they stay there.”

“The job of policymakers,” she says, “is to get them to be banked and to stay there.”

The problem with that is, of course, life, and employment, in the U.S. is more like a jungle gym than the traditional ladder of success that was popularized nearly a century ago. The ladder model is archaic.

Today, people are working at gig economy jobs more and more—they no longer know how much money they’ll make next month or next year, let alone next week.

Adding to the uncertainty is that health insurance is costly and comes with expensive co-pays that policies didn’t have just a few years ago. While it might not have cost much to give birth in a hospital (for someone gainfully employed and with health insurance) just a few years ago, the cost—even if the employer hasn’t changed—has gone up: What cost a few hundred dollars before is suddenly $3,000. That same family might have to turn to a payday loan just to have a baby.

Using these alternative financial services, then, “is not really a function of intelligence,” says Servon. It’s a part of surviving.

Therefore, says Servon, the idea that “If they only knew how to do things right, they would bank the way we think they should,” is not what’s happening.

“People who are taking payday loans are people who make $50,000, $60,000, $70,000 a year, own their homes and have a college education. That’s the fastest-growing group. It’s not people who ‘don’t know better.’”

Banks have become more expensive, says Servon, making more of their money from fees, and that automatically excludes people who can’t afford it.

There are three other primary reasons for the switch of the middle class from big banks to check cashers and payday loans: The increase in income volatility—people making different amounts of money week to week. “Income volatility has doubled in the last 30 years, so we have twice as much instability today. People’s ability to predict what is coming into the household has changed radically,” says Servon.

Additionally, since the 1970s, people have been making less money. “We see productivity rising, but the benefit of that is being accrued to a smaller number of people,” Servon adds.

Finally, Servon says we’ve experienced what’s known as the “great risk shift”: Decades ago, the public and corporate sector took on more of the risk of being sick or retiring early. Today, she says, “people’s employment comes with less insurance, less benefits. All that risk is now shifted on to individuals.”

All of this, she says, puts the middle class into a much more precarious situation.

According to her best estimation, nearly 30 percent of the U.S. population now uses alternative financial services. While check cashing specifically will decline as more and more people use technology to make payments, there will still be growth in the industry, such as with loans.

“People aren’t stupid,” says Servon. “It’s not just the poor and people of color, but one of your kids teachers, your dental hygienist. We have so much shame about money, people aren’t comfortable talking about it.”

So what’s to be done?

For one, we need more, and better, regulation of banks, she says.

Even though she acknowledges that might not be realistic right now, “You can’t give up,” she says. “You need to be ready,” so when the time comes, you’re prepared to take action to push for the right change.

In the interim, she supports educating people of all kinds of what better financial options are, such as shifting from a bank to a credit union. (Credit unions are non-profit.)

People can also find a community bank or a bank that is social justice–oriented.

Another point Servon stresses: “It’s not just low-income people suffering.” For her, it’s important people understand the people suffering from the current economic climate are those they can relate to.

After all, check cashing and payday loans or lack of financial literacy aren’t the source problems. Rather, these types of systems are symptoms of an unhealthy economic climate overall.

“Even if you could completely change the financial services, it doesn’t address poverty,” Servon says. Higher minimum wages are an important component, along with better health care, child care, and “all the things that make people more stable… We need to keep arguing for those things.”

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About Lambert Strether

Readers, I have had a correspondent characterize my views as realistic cynical. Let me briefly explain them. I believe in universal programs that provide concrete material benefits, especially to the working class. Medicare for All is the prime example, but tuition-free college and a Post Office Bank also fall under this heading. So do a Jobs Guarantee and a Debt Jubilee. Clearly, neither liberal Democrats nor conservative Republicans can deliver on such programs, because the two are different flavors of neoliberalism (“Because markets”). I don’t much care about the “ism” that delivers the benefits, although whichever one does have to put common humanity first, as opposed to markets. Could be a second FDR saving capitalism, democratic socialism leashing and collaring it, or communism razing it. I don’t much care, as long as the benefits are delivered. To me, the key issue — and this is why Medicare for All is always first with me — is the tens of thousands of excess “deaths from despair,” as described by the Case-Deaton study, and other recent studies. That enormous body count makes Medicare for All, at the very least, a moral and strategic imperative. And that level of suffering and organic damage makes the concerns of identity politics — even the worthy fight to help the refugees Bush, Obama, and Clinton’s wars created — bright shiny objects by comparison. Hence my frustration with the news flow — currently in my view the swirling intersection of two, separate Shock Doctrine campaigns, one by the Administration, and the other by out-of-power liberals and their allies in the State and in the press — a news flow that constantly forces me to focus on matters that I regard as of secondary importance to the excess deaths. What kind of political economy is it that halts or even reverses the increases in life expectancy that civilized societies have achieved? I am also very hopeful that the continuing destruction of both party establishments will open the space for voices supporting programs similar to those I have listed; let’s call such voices “the left.” Volatility creates opportunity, especially if the Democrat establishment, which puts markets first and opposes all such programs, isn’t allowed to get back into the saddle. Eyes on the prize! I love the tactical level, and secretly love even the horse race, since I’ve been blogging about it daily for fourteen years, but everything I write has this perspective at the back of it.

87 comments

  1. Geo

    Thank you again for another important article. I’ve survived due to check cashing places before. When you haven’t eaten in three days you finally get a check from a “gig” you cash it so you can eat that night. Add to that the fact your checking account is currently overdrawn and if you deposit that check a lot of it will immediately be eaten up by the debt in your bank account, you keep the cash so you can survive while overdraft fees accumulate.

    It’s a terrible position to be in because you know it’s not the “wise” choice but it’s the one that alleviates the immediate hunger pains and anxiety that comes from having no gas money (no way to get to the next “gig”).

    For most, these are not choices made out of ignorance but are made out of desperation. If we had better options we would take them.

    Reply
    1. JBird

      I’ve found after a day, and with plenty of water, hunger tends to fade away. Especially if I made really sure not to see, or smell, food. Then it’s like being punched hard in the gut. Thankfully, I never had to go longer than three days and really, really hope never again.

      I am damn lucky that those times stand out because they have been so rare for me. There are people all over the country, especially in expensive places like the Bay Area, where people especially with children go hungry regularly.

      Then I read the victim blaming of the poor, the hungry, the homeless, and aside from making me enraged, I get puzzled, even confused, as to what country they live in. People don’t want to be all those things, and almost all want to work, so just how do those blamers believe their nonsense?

      Yes, for some it is political propaganda, or excuse making for evil acts, but far too seem to honestly believe what they say. And yes, people often see what they want, but the massive amount of suffering along with the economic decay is extremely hard to miss. It must require great effort not to see what is now breathing right in their face and probably is about to punch them, along with everyone else, in the face.

      Reply
  2. Altandmain

    The real root cause of the crisis is that real wages are not keeping up with the cost of living.

    This has been caused by the pursuit of neoliberal economics. Real inflation adjusted wages have been stagnant for decades.

    People are turning to these payday loans and similar services, along with credit card debt because their living costs are growing much faster than wages. In many cases they got hit with a sudden, unexpected cost or a sudden spike in costs. It is difficult for many people to save money, which leaves no margin for error.

    Keep in mind that in many cities, rents have gone up as much as 10 percent a year on average. Other living costs are skyrocketing too. Meanwhile, corporations are loathe to give even a measly 2 percent raise.

    The nature of these payday loans is quite predatory. The interest rate is very high and they know they have a large amount of people who are desperate enough. It can very easily lead to cascading fees and higher interest rates.

    As the article notes, people are not as financially illiterate as has been implied in the press. It is a problem of people getting screwed. Then there is a huge number of people who never got a chance to recover from 2008. For them, along with those who lost jobs to outsourcing, age discrimination, layoffs, etc, they have faced serious declines in their income.

    The article also gave an example of borrowing to pay for a baby delivery. Perhaps the conservatives moaning about people who had kids they could not afford are having their way. Birthrates are now dropping to record lows.

    Ending neoliberalism is the only real way to solve this one. Regulating banks and payday lenders is anathema to their ideology. So too is paying the workers their worth so that they won’t have to worry about payday loans to begin with.

    Reply
    1. Fiery Hunt

      “..rents have gone up as much as 10% a year on average…”

      Yeah, I wish.
      23% increase last year, 16% coming in October.

      Reply
  3. cripes

    Why, oh why do the poors live so…shabby? she said gazing at the tents clustered under the overpass from behind the wheel of her BMW 23i.

    Reply
    1. The Rev Kev

      Maybe the following two articles may be illuminating here. I found them so-

      I wonder if the fact that wage levels basically flatlined in the US some half-century ago and never got up off the ground since then in spite of rising costs of living might have had something to do with it. And maybe the basic essentials of a good life like advanced education, healthcare and housing being turned into never ending debt-mills might not have helped either.

      Reply
      1. Carla

        “Another point Servon stresses: It’s not just low-income people suffering. For her, it’s important people understand the people suffering from the current economic climate are those they can relate to.”

        GOD FORBID anyone be able to relate to those who have less money than they do.

        This condescension and stupidity is just enraging.

        Reply
        1. flora

          I don’t think so. One can see one’s community being destroyed and worry, even if one is technically doing ok. We are not all, no matter what the neoliberals say, disconnected and indifferent to the community and society in which we live. Note to Margaret Thatcher and Milton Friedman school of neoliberals: Yes, there is such a thing as society. It is broad, encompassing, and important at all levels.

          Reply
  4. jackiebass

    It’s not just poor that are financial illiterate. A bar I go into serves mostly middle income people. They don’t take credit cards. There is an ATM for customers to use. Ever day I see regular customers at the ATM. The limit is $100 and there is a $5 fee when you use it. To me thats pretty expensive to get you own money. Many use the ATM a couple times a week. If you do the math it cost them over $500 a year. I instead stop at my credit union to get cash because it is free. Also I use credit cards that pay cash rewards and have no annual fee. Each month I pay off the balance so it is free money with a bonus. Many people don’t understand the cost of borrowed money. As long as they can make the monthly payment they think they are doing O.K. It takes financial discipline but the less you depend on borrowing the better off financially you will be.

    Reply
    1. Carolinian

      Yes if middle class people are also using these payday loan companies it can’t all be blamed on shysters taking advantage of the poor and desperate. Another element is that we live in a status conscious consumer society where we are constantly encouraged to live beyond our means even as those means are shrinking due to the neoliberal political climate. In America we are propagandized virtually from the cradle to want the latest stuff and keep the economic engine humming. So you can’t just blame this on individuals or some sort of moral failing. It’s a big Skinner box and we are in it.

      Reply
      1. JTMcPhee

        The Great Market of All Things is sure one heck of a self=licking ice cream cone, no? Amazing how we mopes of all income levels except the very top will flow along with the programming. Want, want, I want it Now, “it” being the latest made-in-Asia crap. How did our forbears manage to live without all that stuff As Seen On TV?

        But shysters gotta shyst, and the payday and car title lenders and the other predators do, as far as I can see, form a kind of cartel and web — with the Big Banksters, the whole panoply of Sellers of Idiot Dreams Of Consumption and the crap they market. The tendency to blame the individual for “being weak” is so strong, isn’t it? But maybe that’s a little like blaming the liver for the cancer or Hep C…

        Would a Postal Banking System immediately succumb to the Looters? As long as The System and the mopes who are subjected to it are presented only with Ruler choices like Diane Feinstein, my money is on the “looters will own it from the git-go,” since they will draft the legislation and the regulations and policies and guidance documents and accounting standards that apply. Or if decent people do get the first draw at it, will soon capture the processes.

        Maybe locals can figure out a way around the scams, something other than crowd-funding and social-mediated forms (that can also be so easily abused)? There are precedents, though they are, as I recall fragile, and require a polity that is grounded in that sadly weak and silly notion of comity…

        Reply
        1. drumlin woodchuckles

          ” How did our forbears manage to live without all that stuff As Seen On TV?”

          All that stuff didn’t used to exist. That made managing to live without it a default reality. Also, our forebears didn’t have TV. So they couldn’t see any of it.

          So since they couldn’t see any of it on the TVs they didn’t even have, it didn’t even exist anyway to be seen on those TVs they didn’t even have, they had an easier time managing to do without it.

          Our mission, should we decide to accept it, is to manage to live without all that stuff knowing very well that it exists because we see it every day on the TVs we all have. That . . . is more difficult.

          TV is a sales lamprey with its mouthfull of sucker-disc teeth dug into our brain. If any one has an idea how to voluntarily choose to do without stuff which we know is a credit-card and a dollar-store away, this might be just the right thread on which to offer those ideas.

          Perhaps it starts with deciding we will manage to do without just a tenth of the stuff we know is out there. Just a tenth. Ten percent. A “negative tithe”. Permanent Lent-Lite.

          And if we can manage to do without that tenth of the stuff we “just can’t manage to do without”, we could work our way up another tenth at a time to where we are managing to do without HALF of the stuff we “just can’t manage to do without”.

          Hardest of all for the poors who have so little material pleasure in their lives to begin with. George Orwell wrote about that way back in the 1930s or 1940s maybe . . . about nonpoors lecturing the poors to go without even the occasional material pleasure when “occasional” meant very rarely anyway, and was the only few opportunities for pleasure in a life of pain.

          Reply
    2. pretzelattack

      the thing is, more and more people depend on borrowing, financial discipline or no. jobs are far less stable, pay less, and the things we need, but not the things we want, keep going up in price.

      Reply
      1. Carolinian

        Housing has been shooting up but my impression is that grocery prices–at least where I live–have if anything been going down (while eating out is becoming more expensive). And the proliferation of discount stores out in the heartland could be holding down costs on other staples as well. There is a “Walmart effect” on prices as well as wages.

        If TPTB really want to help the poor then the best thing they could do would be to raise the minimum wage. Bringing back anti usury laws might be number two.

        Reply
        1. ambrit

          I don’t know about where you live but, where we live, South Central Mississippi, (just call us South Central and be done with it, alright?) WalMart prices are visibly going up. Five percent at a time, but up. The ‘quality’ of the goods on display has somehow gone down as well. I can’t quite put my finger on it but the clothes are looking cheaper, (coarser?) and the quantities of goods per container have shrunk. Prices overall in the grocery departments are rising, with the odd ‘loss leader’ price for a high profile good serving as the distracting ‘sacrificial goat.’
          As far as enlisting the help of the TPTBs, well, the trick is to make clear to them that the health of the ‘commons’ is their health. Thus, given the power of Stupid and Greed, it will probably take a few sessions of “Mob Justice” to thin the ranks of the TPTBs before the paradigm shifts.

          Reply
          1. Carolinian

            Well we have two new Lidl grocery stores breathing down Wally’s low price neck so that may be part of the effect I mentioned. And maybe you are right about Walmart. I rarely buy groceries there.

            But with these German stores duking it out we definitely have a grocery price war in my town. The more traditional groceries are affected as well but Walmart is usually disinclined to let anyone beat them on price. It’s their whole selling point.

            Reply
            1. ambrit

              You have to watch the WalMart prices like a hawk. I used to talk to the manager of a WalMart down further south, in Lousyana. He said that the pricing profit margin was the thing to watch. The ‘good’ prices are out front, or in prominent places. The further back in the store from the entrance, the higher the individual item profit margin was. Look at what’s the furthest from the entrance: dairy, beer, sodas, water, chips and nuts, domestic disposables, etc. Stuff that is used by everyone all of the time. Also, having to walk back to get your gallon of milk, you pass by lots of ‘impulse sale’ items. Items like chips, cookies, candy and the like. They are strategically placed so that you must pass by them to get to the basics.
              We notice regularly now that the other local groceries, Winn Dixie and several small local chains, beat the WalMart prices on a lot of stuff.
              Alas, we are such a half horse town that we don’t have a Krogers, much less Lidl.
              Anyway, do start watching and comparing WalMarts’ prices with the other local chains. You’ll be surprised.

              Reply
            2. ambrit

              Skynet just ate my reply to Carolinian. Is there a preferred wait time before sounding the alarm?? (Serious question.)

              Reply
          2. Pespi

            Wal-mart can’t beat Aldi and its clones on price, and it doesn’t beat other hypermarts either. The food seems a bit better at rival chains with more high end grocery stuff to buff up their look (fancier dairy goods/deli stuff/wine) , but the prices on the rest are almost identical, if not lower. But the precariat still flocks to wal-mart, at least in the couple of towns where I shop regularly. It’s like woodstock 95 at the wal-mart, every weekend. They really target that demographic in their advertising, and the early 90s period when they were a price leader thanks to their mafia tactics, sticks in the mind. Now those supply chains have been squeezed for everybody. The workforce at grocery stores is non union, robot cashiers abet people who love very low priced produce that happens to look exaclty like expensive produce.

            Reply
      2. marieann

        We started our married life before there were credit cards. We borrowed from the credit Union at my husband’s work. We also saved with it so there were benefits to borrowing from them.
        I think we were the last generation to have all those workplace benefits :(

        I know my sons don’t have much where they work. They borrow from the bank of Mum and dad :)

        Reply
    1. JTMcPhee

      Do loan sharking in a Muslim country, where Islamic banking and financial principles apply, and they remove your hands, or so I am told… At least, it is “not countenanced…

      And if I recall my Old Testament, the rule at least between Hebrews, goyim need not apply, was “no interest may be charged,” and I also recall they had this thing called a “jubilee” every so often.

      And it is gratifying to see that more mainstream mouths are calling for student loans to be zeroed out. “Oh, but I paid off my student loans, outrageous as they were, including all the costs and fees and interest and extortion, and I was lucky to have a job or money from my dead parents or I was so smart I went to a low-tuition school, so it is only fair that the rest of you pay off Every! Dang! Penny! of your Just Debts! Just like corporations do, or banks, or schools, except when they disappear into bankruptcy or all of us pony up to bail them out for their bad and looting decisions and actions… So to encourage people to #juststoppaying is evil and bad, and besides, the looters have set it up so they can cause you no end of pain if you dare to #juststoppaying, or if you have no income or assets from which you can buy food, pay for a roof over you, get to a job, or for health care and do not have any choice but to do that unutterably evil thing and DEFAULT ON THEIR LEGAL CONTRACTUAL OBLIGATIONS!!!!”

      Reply
      1. Disturbed Voter

        i happen to be Bible oriented. I completely support legal repudiation of college loans. They should never have been subsidized by the government in the first place … let alone made non-dischargeable. Just part of the disgraceful failure of America to even live up to the horror it used to be. We have progressed … to new horrors.

        Reply
  5. Wukchumni

    One third of my fellow citizens can’t scare up four hundred bucks, so it’s not as if they aren’t used to being used financially.

    Reply
  6. Kk

    Hi Yanks welcome to the world – no skills or education then in a world without borders you’ll live like a working class Indian or Chinese! And why not?

    Reply
    1. ambrit

      Why not? Because we here in the ‘Land of the Free, (or the at least Ten Percent Off,) back in the Fifties and Sixties, we were promised that we would be bringing the rest of the worlds’ standard of living up to our levels. Not, as is happening today, the other way around.
      Besides, have you been seeing the spate of Chinese protests about this and that where the police move in to “quell unrest” and get their arses kicked? That’s a skill Americans need to learn from their world wide brothers and sisters.

      Reply
    2. flora

      edit: ‘Hi Yanks welcome to the world – no skills or education in a world where your bosses and owners have all the market power and take the sur monetary value you create (because you have no market power) and you’ll live like a working class Indian or Chinese!

      Reply
  7. Michael Fiorillo

    “The economy is continuing to create more of our core customers.”
    Todd Vasos, CEO, Dollar General Stores (
    americas-store-of-choice-1512401992)

    “Our core customers,” i.e., poor and struggling people… Well, at least someone’s makin’ money, right?

    Reply
    1. California Bob

      Link doesn’t work for me. I’m interested because I just finished a 5,500 mile road trip–backroads only where possible–around the western and mid-western US, and was struck by how many small and obviously impoverished rural towns had a brand-spanking-new Dollar General, Family Dollar, etc. store, while every other building was dilapidated (in one small town there were Dollar General and Family Dollar stores right next to each other!).

      OTOH, there is a Dollar General near my house in Modesto, CA, and if I need some cheap Tupperware knockoffs it’s the place to go.

      Reply
      1. Jean

        Thank God now there’s competition. Seeing a lot of .99 cent stores.

        Can’t believe all the people holding garage sales trying to sell their compressed sawdust computer furniture and other plastic geegaws.

        Reply
  8. Arizona Slim

    There’s another reason why check cashing places exist, and this article didn’t mention it:

    Aiding and abetting criminal activity.

    Why do I say this? Because of personal experience.

    A few months ago, I was away from Tucson. While I was gone, I got two calls from a check cashing place in Tucson. I’ve never done business with this place, so why would they be calling me?

    I called the place to ask that question, and no one would give me a straight answer.

    In early January, I returned home and found that my place had been ransacked. In addition to being a burglary victim, I also was the victim of identity theft. Checks, credit cards, files, and other items useful to identity thieves were no longer in my house, and some of those items were in a locked file cabinet that had been jimmied open.

    Well, the police were quite interested in the calls from the check cashing place, and a detective even went over to do an interview. Know what that check cashing place told him? You’re gonna love this:

    No video exists from the incident.

    That’s right. No video documentation at the time those two phone calls were made to my number by the check cashing place.

    I call BS on that one. I mean, come on. Check cashing places are financial institutions and they’re camera-ed up like casinos or banks. When they’re open for business, the cameras are rolling.

    Methinks that my ID thieves went to this check cashing place, tried to cash one of my checks, but the place tried to call me and couldn’t reach me. But they didn’t leave a message. And, of course, no video existed. Yeah, sure.

    Fortunately, the crooks weren’t able to get any of my money via that check cashing place.

    But here’s the thing: In Tucson, check cashers are not located in the nice parts of town. They’re like pawn shops and liquor stores. They tend to cluster in low-income, high-crime parts of town. That’s why I say that they’re part of the crime problem.

    Reply
      1. edmondo

        I bought a half gallon of milk the other day and found four of my most recent comments on the side of the container.

        Reply
    1. JTMcPhee

      Speaking of crime, and check cashing operations and “payday lenders” being involved in “illegality,” it seems a lot of these places are involved in money laundering (see here for an example of where the “justice Department” actually went after some illegal actors: ). If one searches on “check cashing money laundering,” one gets a whole lot of examples. Plus a lot of pitches from former bureaucrats offering to put up a pastiche of ‘compliance activities” to be shown to any regulators that get off their backsides to investigate and enforce against violations of the various federal and state laws that still sort of make the kind of stuff that drug lords/CIA/Bankers/0.1%ers do every day…

      Reply
  9. Steve

    It is my experience that the average American now has little understanding of compounding interest, fees or the imagination to see long term consequences. This makes them easy targets for all the businesses that are based on usury. The ripping off of Americans is now the basis of our economy and the entire FIRE economy is based on dishonesty. But it is more than just lack of financial ability. Recently two people (very smart people) bought the same car I got 2 years ago. They asked me how I liked it where I bought it, etc. I told them how I bought it (Costco auto program) what I paid and how easy it was. The price I got was thousands less than the other best price services. Neither of the people did what I did and both spent thousands more than I did for the same exact vehicle. I have watched this happen dozens of times. I also know very smart people who ended up with very bad home loans and criminal closing fees. The tragedy of our system is that it only takes one bad choice or stumble to put many people in a financial hole that they will never get out of. It is not just the poor. All the slack is out of the system. With the current debt load on many middle and upper middle income people they are much closer to disaster than they understand.

    Reply
    1. flora

      +1

      adding: not only is all the slack out of the system, but both parties have cut the safety nets in the name of austerity and a balanced budget, while passing bloated MIC budgets and tax cuts. The latest Military budget, passed 85-10 (bipartisanship!), is $716 billion
      dollars, an $82 billion dollar increase from 2017.

      The politicians, almost in the same moment, claim Medicare and Medicaid may need to be cut to balance the budget. Squeezing Americans starts in D.C. , imo.

      James Kwak at Baseline Scenario has a good Feb, 2018 column:

      On top of the skills problem, there is the problem of capital and labor. In the contemporary economy, an increasing share of the sur goes to capital and a decreasing share to labor. Ordinary people haven’t lost ground simply because they lack skills. On the contrary, labor productivity has gone up by 94% since 1980 (1.9% per year). They have lost ground because the rewards have been claimed by a handful of top executives and mainly by shareholders. There are many reasons for this—most recently the Trump tax bill, which, by cutting corporate taxes, increased the value of existing stocks. The bottom line is that there are millions of people with considerable job skills who make barely enough to get by. Consider customer service representatives, for example, who have to navigate complicated software programs while dealing with frustrated and often irate customers who can often barely articulate what problems they are having. The reason they don’t make a lot of money isn’t that they are unskilled; it’s that their employers have all the market power.

      Moderate Democrats think we can solve our problems with a little more economic growth, more job retraining, and a modestly higher minimum wage. This is a fantasy.

      Reply
      1. Steve

        Thanks for the good links! Our military budget is a moral obscenity! I also think that a lot of the complaining about Millennials, that is always in the news, is purpose driven. By creating animosity between Millennials and late Baby Boomers/GenXers it will be easier to get Millennial votes to defund Social Security in a few years with changing demographics.

        Reply
        1. flora

          30-year-olds can’t really imagine being 60-year-olds, and are still hopeful everything will work out fine for them individually – an outlook that’s part of being young and strong and hopeful. (thank goodness for youth and strength and hope in the world.) At 50 and 60 they’ll very much want a strong social security to exist for themselves – they’ll have been paying SS fica deduction their entire working lives. (If the pols try to convince them they don’t need SS because they’ll do better investing on their own, I hope they look at the 401K retirement debacle. That was sold on the same pretext. It’s been a disaster compared to defined benefit benefit pensions as far as building a reliable retirement income source.)

          Speaking of Social Security… today, in 2018, its benefit buys 34% less than in 2000. The DC anti-SS pols have been working tirelessly to undermine its benefit. This is due to politics.

          Reply
    2. Lambert Strether Post author

      > The price I got was thousands less than the other best price services. Neither of the people did what I did and both spent thousands more than I did for the same exact vehicle.

      It’s their fault. They need to be smart shoppers.

      Reply
      1. flora

        I think there’s always been tension between the economic poles of ‘always look for the lowest price’ (hello, Walmart; goodbye Mainstreet), and ‘support local business, even if it costs a little more’. (Obviously home and auto loans are big ticket items and on another level). I read the remark as more frustration that an attempt to inform about the real state of the economy fell on deaf ears; not victim blaming.

        The problem now, imo, is the entire overall economic neoliberal environment – where almost everyone is getting economically !&*# no matter what they do. The safety net is almost gone. Yet, very many people still think the economy is basically the same as 20 years ago, the “improving” economic condition is just slow to reach their area. The media certainly pitch that story on a daily basis. In reality, 90% of us have no effective political power in the country and have not been able to either rein in the predators or reclaim our historic share of productivity gains in the form of wages and benefits.

        From the James Kwak linked article above:


        The problem, as is well known to anyone (except centrist Democrats, apparently) is how that growth has been shared. Since 1980, real per capita gross domestic product — total economic output per person — has grown by 82% (1.7% per year), while real median household income has increased by only 16% (less than 0.5% per year). Over the same period, the proportion of household wealth owned by the bottom 90% has fallen from 32.9% to 22.8% (see Saez and Zucman, Appendix Table B1). In other words, if wealth inequality had not increased, ordinary American families would have 44% more stuff—more housing, more education, more health care, more retirement security—than they actually do today. That’s a lot of stuff.

        The 90% (us) have lost 30% of our overall wealth in this neoliberal economy; it’s both felt and not seen.

        Reply
        1. flora

          also noting: the differences in the cited percentages between this quoted para and the above quoted para are due to each para being formed around multiple, but different, studies with different stop years, e.g. 2013 or 2016 or 2010. The interesting thing, to me, is that all the percentages show a similar and close trend line.

          Reply
  10. ambrit

    I just did a Google of my local region. The regional population is about 148,000 people. The poverty rate is 22.1% The median household income is $43,572. The number of pawn shops and title loan places listed on the internet is 20.
    So, 20 into 148,000 comes out to a ratio of one ‘Loan’ shop per 7,400 people. Is this a representative sample? Does the ratio shift adjusted for the regional median income, or is it stable across classes?
    What a world.

    Reply
    1. Wukchumni

      From my travels, I found there to be more pawn shops in Texas than any other place, earning it the moniker:

      “The Loan Star State”

      Reply
      1. ambrit

        Then there was the almost war between Texas and Nevada, over copyright infringement. It seems that Reno wanted to trade mark the phrase; “Remember the Alamo(ny.)”
        Then there was the poor Loan Store owner from Jacksonville who was threatened with “severe consequences” by the Marines of Camp Lejune for daring to call his customers his Corps Constituency.
        Of course, in the District of Colombia there is a Pawn Shop catering to the ‘K’ Street crowd. Over the doorway into its Used Sex Toys Department is emblazoned the necessary caveat: “All items over 18 years old.” That room used to be known as ‘Bills’ Hideaway’ until someone threatened legal action.

        Reply
  11. Louis Fyne

    My personal “i can’t believe this is happening” peeve….

    Uber/Lyft drivers get their gross revenue deposited weekly from HQ’s. (sounds normal).

    Uber and Lyft also allow drivers to cash out their fares on a daily basis so long as drivers pay a $0.50 “fee”.

    so let’s assume $0.50 fee on a $150 transfer = defacto payday loan of 0.33% interest for less than a week’s time.

    And I’d bet those quarters add up and exceed the marginal cost for the service for Uber-Lyft.

    So not only do many drivers absolutely need that money now, Uber-Lyft has no problem making money from that convenience either.

    Reply
  12. edmondo

    Had the Democrats rolled out a proposal for a Post Office bank,

    1) they wouldn’t have been able to accept donations from Citibank, Goldman, Chase and Morgan Stanley.
    2) it would have lost in the Senate because it “only” had 59 votes.
    3) it would have been the Obamacare of banking – co-pays on every check written, minimum deposit requirements and fees based on your projected income for the next 5 years.
    4) it wouldn’t have passed but they’d “still be fighting for it” and will make it a reality if you vote for them this November.

    Reply
    1. Robert McGregor

      edmondo, It is interesting problem: Post Office Banking would clearly be a great thing for the majority of people, but not for Citibank, Goldman, Chase and Morgan Stanley. Since those banks “own” the government–Post Office Banking will never happen until we get those banks out of the way somehow.

      Reply
  13. Wukchumni

    You notice the Dollar General stores are generally located on the outskirts of towns when passing by, and it’s almost an admission that a locale is headed towards loserdom by it’s inclusion. I didn’t see any place where there was one, that didn’t already have local merchants selling the same wares heretofore in my 70 mph fleeting glimpse.

    Reply
  14. timotheus

    I have often wondered if one could lend one’s own banked self to friends or acquaintances who face this problem by offering to deposit their checks into a personal account and fronting the cash. This sounds like something DSA (or a similar group) could offer as a “concrete material benefit” to go hand in hand with organizing people for demands for FIRE reform. Why could it also not work for immigrants paying through the nose to send $$ through Western Union and other gougers? Of course, there are trust issues involved, but it would seem like a good way to do an end run around this bankopoly.

    Reply
      1. Anon

        I’m guessing not (AML, operating a money transmitter without a license, and possibly other violations), but I don’t know for sure.

        Even ignoring the possible legal issues, it’s impractical. For one, John Smith isn’t supposed to be able to deposit checks made out to Jim Jones unless Jones’ name is also on the account. In practice, it might be possible to make such deposits due to lax verification in modern banking (http://cfdtrade.info/2013/09/td-bank-we-dont-have-to-obey-the-law-on-check-processing.html), but I still wouldn’t suggest it.

        Reply
      2. lyman alpha blob

        Not a banking expert or a lawyer but I used to work at WAMU. Tellers are supposed to note who a check is made out to and if it isn’t the same as the name on the account it’s going into, they are supposed to refuse it. The only way I’m aware of to get a check made out to another person into your own account is to have that person sign it with ‘pay to the order of ___ ‘ written on the back, and that may even need to be done in person. So technically it would be legal to take a check this way and I did used to see it happen on occasion, however if it would definitely raise a few eyebrows if multiple checks started being deposited like this into the same account on a regular basis.

        To me, no matter how well intentioned, acting as a zero interest payday lender by doing what from the outside starts to look similar to some money laundering scam isn’t the way for DSA or similar organizations to go. They’d do more good and gain more credibility by working with (or even forming!) a credit union to steer people towards share accounts with low interest ODLOCs attached. That way you have checking, savings, an ATM or debit card if you want one, and a small line of credit which works as protection against overdraft fees.

        ODLOCs (overdraft line of credit – not the same as overdraft ‘protection’) would go a long way towards alleviating the fees the banks rack up, especially on those who can least afford them. That’s why while most if not all banks have them available, very few will tell you they exist.

        Reply
    1. blennylips

      Wouldn’t a tontine be more appropriate for the times (rules of neoliberalism)?

      Wikipedia points out the problem:

      Tontines became associated with life insurance in the United States in 1868 when Henry Baldwin Hyde of the Equitable Life Assurance Society introduced tontines as a means to sell more life insurance, and meet the demands of competition.

      Over the next four decades, the Equitable and its imitators sold approximately 9 million policies—two-thirds of the nation’s outstanding insurance contracts in the process spawning a growing army of policy owners whose life savings had been wiped out by a single missed payment.

      The huge piles of cash produced by the tontines’ deferred payout structures proved too much temptation for the issuers—especially the profligate son James Hyde. As the funds in the investment account accumulated, they found their way into directors’ and agents’ pockets. Worse, this loot also migrated into the hands of judges and legislators, who reciprocated with judgments and laws that stymied burned policyholders.[14]

      “Huge piles of cash” is good, right?

      Reply
  15. lyman alpha blob

    After all, check cashing and payday loans or lack of financial literacy aren’t the source problems. Rather, these types of systems are symptoms of an unhealthy economic climate overall.

    Glad the author included that. A person shouldn’t have to be ‘financially literate’ just to make their way in the world any more than they should have to be ‘chess literate’, ‘football literate’ , or perhaps most aptly ‘casino literate’.

    I am literate in all of the above to varying degrees, but they are all just games that no one should be forced to play if they don’t want to. A society with a healthy economic climate would make sure the basic needs of all of its citizens are provided for regardless of their preferred pastime. In the world I’d prefer to live in, the ‘financially literate’ could enjoy a nice game of Monopoly amongst themselves and leave the rest of us alone.

    Reply
  16. Utah

    My state has some of the highest payday loan interest rates, and has more locations per capita than any other state- though I can’t find my source to back that up, I just remember reading it somewhere. It was in the news a couple years ago.
    Our last Dem Congressman (a blue dog who retired in 2014 because he was gerrymandered out of his district and was gonna lose) is now a national payday lender lobbyist. Surprise Surprise.

    There has been a big push in my city for a community bank in order to divest from the fossil fuel industry. One of the arguments for community banking that I made to my city council person is that a community bank can provide short term loans that are fairer than the payday lenders. I hope this issue will come up in the mayor’s race next year. We can’t raise the minimum wage in my city due to state law, so we’ve got to find other ways to decrease the inequity.

    Reply
    1. JTMcPhee

      cough Mormons cough And there is some debate, but it appears Utah residents are at or near the top of the chart of “internet porn consumption:”

      How do you spell “hypocrisy?”

      Must be something having to do with transmigration to those other universes and planets…

      Reply
      1. Utah

        How do you spell “hypocrisy?”

        probably “The Great State of Utah”

        we’re a mess. I think the porn thing is because we’re having fewer kids. The state really wants to keep women stuck as caregivers and “support staff to men.”

        Reply
    2. Annieb

      In Denver metro there are 98 pawn shops for 2.8million (2016). One pawn shop for every 28 people, including children.

      Reply
      1. ambrit

        Uh, that’s one per 28,000 people. Add in the Title Loans and Payday Lenders for a more comprehensive figure.

        Reply
  17. Wukchumni

    The one salient question you have to ask yourself, is why are active military payday loans et al capped @ 36% apr interest and have been for over a decade now?

    Why not the same for the civilians?

    Reply
    1. JTMcPhee

      Marines have guns and hand-to-hand combat skills and know how to fire and maneuver? Air Force has attack aircraft? Army has *something or other*? Though of course anyone following the culture and society of the military knows that there’s vast corruption at the core of it. The procurement rackets (F-35 just one example) are a big part of the missing what is it, $21 trillion, but it goes top to bottom:

      The U.S. Army has stopped trying to pretend that growing corruption among their officers does not exist and is not a serious problem. The other services are in a similar situation and are right behind the army in being open about it and seeking solutions. .

      A search on “American military corruption” gives a dump of tons of types and incidents and programmatic realities… But our course even Sun Tzu recognized that the military would engage in personal opportunism, so we must excuse the “bad behavior” if we all want “military security…” I will refrain from searching for links to “CIA and intelligence community corruption…”

      Reply
  18. sirr duende

    From the above article, the author states:

    “Today, people are working at gig economy jobs more and more—they no longer know how much money they’ll make next month or next year, let alone next week.”

    However:

    “The upshot of all these numbers is that, contrary to the media hype, there has been no great leap in precarious work, even among millennials. This doesn’t mean that workers aren’t insecure and poorly paid. But it’s for different reasons than any big growth in a new, uncharted “gig economy.”

    “Where’s the “Gig Economy?”

    So it seem like the statement that “people are working at gig economy jobs more and more” is misleading.

    Reply
    1. Lambert Strether Post author

      I think it is. It’s become received wisdom, but I don’t think it’s accurate. The gig economy is a horrible symptom and a great metaphor for everything that ails our political economy, but I’m not sure it’s a good shorthand for where we are. Similarly with “bullshit jobs.” Now, I’d be happy to blow away the entire administrative apparatus of the modern university, as bullshit, but that means I have very strong priors. I don’t know — though Graeber may have done this, but I dn’t recall it — whether anybody has run the numbers on bullshit jobs seriously, on a data basis, not an anecdote basis.

      Reply
      1. Michael Fiorillo

        Aren’t there entire “industries” where many/most/all of the positions are bullshit, if not outright socio-pathic, jobs?

        Start with the private health insurers, then subtract the number of people you’d need to run an adequately staffed and resourced single payer system. The remainder would qualify under Graeber’s description, no? And so on…

        I get that a taxonomy of bullshit jobs, along with toxic/sociopathic ones, is useful and necessary, but Graeber’s basic formulation rings true for me.

        Then again, maybe it’s because I work for the NYC Dept. of Education, whose administrative/legal ranks function as an ever-expanding jobs program for highly credentialed and arrogant know-nothings…

        Reply
  19. wotan

    “That same family might have to turn to a payday loan just to have a baby.” if you need t have a “Payday loan” to have a baby, you aren’t ready to be a parent. period.

    Reply
    1. Massinissa

      Having a baby (not a child, just the birth) has gotten exponentially more expensive over the last few decades, though.

      Reply
  20. loblolly

    Growth follows investment. For the last thirty years investment has increased offshore. For the last thirty years American growth has declined and offshore growth has increased.

    That’s the forest, but by all means continue your discussion of trees. Wealth has been transferred and we want it back.

    Reply
  21. KFritz

    Credit unions are good when it comes to providing their services without predatory fees, lower rates on credit cards, and terms of loans. However at the moment, they are no better, and often worse, than banks in terms of interest paid to account holders.

    Reply
    1. lyle

      Actually its hard to be worse than Wells Fargo on checking, to start with you have to have 25k to get any and the interest rate is .05% per year. CD rates at the bank are also ingeneral low, but if you jump to the brokered CD side (still get FDIC coverage) you can get 3% for five years. There are online places but the folks talked about it this post are not good customers for them.
      BTW the new way to bank might be the prepaid debit card with no check writing. They do have bill pay services some of which are free. Note that in many cases if you cash a paper pay check and get all cash you have become a crime magnet for muggers. The way these are set up is no overdrafts are possible as with checking accounts, but they do direct deposit of paychecks. Note that more and more starting with government benefits you will have direct deposit or get no money as paper checks are no longer an option. Direct deposit here avoids the visit to the check cashing outlet.
      Note there are some no fee debit card accounts. see

      Reply
  22. Schmoe

    It baffles me that I get about $1,500 per year in bank, credit card and cash back promotions (yes, I know that I am being charged more by retailers to cover CC fees), while poor people get absolutely destroyed by $35 overdraft fees (and why always $35, does it really cost $35 to cover every check on an overdrawn account?), payday lenders, ATM fees, 20% credit card interest and late fees (middle class issue), etc. The rip-off of the poor is even worse when viewed as a % of income.

    This redistribution of wealth from the poor to those who do not need it is not captured in income inequality analyses, but will be reflected in wealth inequality studies.
    As an aside, I had the exact same credit card as my Dad and we both had good FICO scores; I was allowed set up automatic payment and he was not. He was 89 at the time, so I assume that they assumed that he would miss payments given his age and they could hit him for fees.

    Reply
  23. Rosario

    Serious question on banks. Why are any banks private? Is there a reason for private banking? As in, does private banking offer any advantage, that is not exploitative, over an exclusive monopoly on banking through the issuer of currency?

    As far as I am concerned there should be one bank, Federally controlled, under democratically elected leadership.

    Reply
    1. lyle

      The issue is that then you would gradually migrate to pure socialism, as the government bank would be the only source of loans to business, which would mean eventually they would controll business. Now if you mean a consumer bank, that is basically what credit unions are mutual associations owned by their depositors

      Reply
      1. Rosario

        Ah, K. I guess that makes sense. Seems to me like the problem is where to draw the line in the sand with private lenders. Credit union (Co-op?) banking models would be nice if they held more sway.

        Reply
  24. roxan

    If you have poor credit or no credit most banks won’t let you even open a safe deposit box, let alone an account. Also, I think low or uneven income is figured in. If you have lots of money to deposit they probably don’t care about your credit. I looked into a local Credit Union a couple years ago so I could have an account closer to home–present bank is a substantial drive but I’ve been there for decades–Credit Union said that in order to open an account I would need proof I had an account somewhere else! So, if you have no bank, or had a few over drafts at the last one, I doubt you can open a bank account. As to Payday Lenders, I knew someone who took a $500 loan on their old car at one of those places that loans money against the car title. They knew it was ready to die, and it did–so they came out ahead. They were too poor to have credit, so no concerns about that!

    Reply
    1. tg

      Good luck FINDING a bank that still offers safe deposit boxes. Once you do find one, the waiting list for an available box is lengthy. Also, they usually won’t rent you a box unless you already have some kind of deposit account with the bank.

      Then read the rules carefully….they typically prohibit you from storing currency in the box.

      As a “secure” savings solution for the unbanked, safe deposit boxes haven’t been a viable solution for a very long time.

      Reply

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