9 ms·

And this is why many of the poor stay poor, and many in the middle class stay middle class. The poor don't have the capital to take advantage of the greater dis

by greedo 14y ago

And this is why many of the poor stay poor, and many in the middle class stay middle class. The poor don't have the capital to take advantage of the greater discount and the middle class tend to value short term "convenience" over long term savings. If a poor family of four spends $600/month on groceries at standard pricing, their inability to "afford" the 33% discount costs them $2376 a year. For a middle class family spending $1200/month, that's $4752. Many of the successful poverty programs try to elevate the savings of poor families so that they can stop buying groceries and supplies at the "convenient" prices.

user49598 14y ago
And this whole time I thought it was about jobs and education.
- greedo 14y ago
  Funny how much education you can afford when you're not overpaying for basic necessities.
  - noamsml 14y ago
    Assuming you save all of the $4752 a year, which is dubious, that's barely enough to send you to a low-tier university or community college. Mind you, that's better than nothing, but if you think the opportunities open to students who go to lower-tier universities are the same as those available to students who were able to afford top-tier universities' egregious tuition, then you've got another thing coming. In short, it's a cycle: Those who can't afford to go to a good college have less career opportunities open to them, ensuring they have a hard time sending their children to a good college. The solution, of course, is a wide and far-reaching scholarship program that lets students not worry about their socio-economic status when applying to colleges, but that's "socialism".
    - greedo 14y ago
      If you were to invest that at 6% for 18 years, (say when your child was born), you'd end up with $155K before adjusting for inflation. That would pay for a lot of college. And for the poverty family, this would be about $77K.
      - drostie 14y ago
        That would be great, if you were living sometime between the years 1960 and 2000. I don't know if you've heard, but we've had a rather spectacular economic downturn since then. 5-year CDs are less than 2% interest; 1-years are a little less than 0.8%. (The corresponding rates for the stock market are too volatile to quote.)
teamonkey 14y ago
I'm not convinced by the argument that the middle class stay middle class because they spend too much on convenience. $4752 a year extra will not make me rich, far from it. $475,200 a year extra WILL make me rich.
- greedo 14y ago
  Plug $400/month into an investment calculator (@6%) and see what 40 years would do you... You'd be surprised how much a modest amount of savings can do when compounded over time.
  - dennisgorelik 14y ago
    If you are 30 today, then in 40 years you would be 70. Good time to get rich :-)
    - greedo 14y ago
      I'd rather be rich at 70, than poor...
      - dennisgorelik 14y ago
        You are not going to get rich for free. That would require extra effort over 40 years. You can put that effort elsewhere, for example launch 5 startups, or have 5 more kids, or extra vacation every year.
    - teamonkey 14y ago
      After investing $4700/year for 40 years you still won't be rich. The amount I could withdraw each year would still be much less than my current middle-class salary. In other words, I'd have less income than I do now. In fact, I need to squirrel away a very large proportion of my salary to retire and be better off than I am now. I can't afford that, which is the point. The middle class is too poor to ever be rich.
  - psykotic 14y ago
dionidium 14y ago
Poor people are poor because they don't make as much money as the middle class. Middle class people are middle class because they don't make as much money as the rich. You can't explain that away by criticizing questionable spending at the margins.
- greedo 14y ago
  I'm not criticizing them for questionable spending at all. They simply don't have the capital to take advantage of better purchasing options.
  - larrys 14y ago
    "They simply don't have the capital to take advantage of better purchasing options." Similarly they will buy a used car at an inflated price because they are lacking the dollars to purchase a new car and/or have the credit to do so. Having more money gives you the flexibility to consider all options at least. If you don't have the money you're not even in the game.
    - dionidium 14y ago
      I get that you're trying to make a larger point, but this isn't a very good example with which to do it. Used cars are nearly always a better value than new cars.
  - drostie 14y ago
    Look, (a) you screwed up the numbers. You should not be comparing, in this hypothetical scenario, 1.33 with 1, but rather 1/(1 - 0.33) with 1.33, which is instead 0.1625. That is, "these people who don't understand the numbers involved" in the above article includes you. :P And the article above does not make the pretense that this is a uniform problem affecting all of the consumption of the poor; rather just that certain deals may be irrationally treated because of how they are phrased. There is no mythical 33%-across-the-board discount for the poor at stake here; at best it's a 16.25% discount available in very limited circumstances. The real point of the original article was that many people seem unable to determine the difference between 1/(1-0.33) and 1.33, which is only a 16% increased-cost gap (b) It would be very tough to make these economics work out in the present market where even 5% returns seem overoptimistic. Suppose you could reliably convert a poor person into a rich person (and I'll take a modest $200k/year income to define "rich"), by giving them $5k per year and making sure that they spent it on "the right sort of thing," banks could probably do it. I mean, just imagine making this pitch to a poor person: "I'm going to make it so that in 10 years you are earning $200k/year, and then I will take $20k of those every year for 20 years -- so that you only earn $180k/year -- as payment." To a poor person that's an unbelievably sweet deal. They would take that offer and might even offer a much larger cut of that salary to that bank. Suppose that with oversight the cost to the bank is as much as $10k/year, of which $5k goes directly to the person and $5k is administrative losses in making sure people don't misspend the money. From the bank's perspective that's a 10% return on investment, which is not amazing but not too shabby. Even if it only works 50% of the time, in today's economic climate that easily beats treasury bonds as investments go. It's in the bank's financial interests then to lift people out of poverty with this mechanism. I don't see any banks doing this, and while it may be possible I would guess that it takes much more money to do it.

by greedo 14y ago

user49598 14y ago

And this whole time I thought it was about jobs and education.

greedo 14y ago
Funny how much education you can afford when you're not overpaying for basic necessities.
- noamsml 14y ago
  Assuming you save all of the $4752 a year, which is dubious, that's barely enough to send you to a low-tier university or community college. Mind you, that's better than nothing, but if you think the opportunities open to students who go to lower-tier universities are the same as those available to students who were able to afford top-tier universities' egregious tuition, then you've got another thing coming. In short, it's a cycle: Those who can't afford to go to a good college have less career opportunities open to them, ensuring they have a hard time sending their children to a good college. The solution, of course, is a wide and far-reaching scholarship program that lets students not worry about their socio-economic status when applying to colleges, but that's "socialism".
  - greedo 14y ago
    If you were to invest that at 6% for 18 years, (say when your child was born), you'd end up with $155K before adjusting for inflation. That would pay for a lot of college. And for the poverty family, this would be about $77K.
    - drostie 14y ago
      That would be great, if you were living sometime between the years 1960 and 2000. I don't know if you've heard, but we've had a rather spectacular economic downturn since then. 5-year CDs are less than 2% interest; 1-years are a little less than 0.8%. (The corresponding rates for the stock market are too volatile to quote.)

teamonkey 14y ago

I'm not convinced by the argument that the middle class stay middle class because they spend too much on convenience. $4752 a year extra will not make me rich, far from it. $475,200 a year extra WILL make me rich.

greedo 14y ago
Plug $400/month into an investment calculator (@6%) and see what 40 years would do you... You'd be surprised how much a modest amount of savings can do when compounded over time.
- dennisgorelik 14y ago
  If you are 30 today, then in 40 years you would be 70. Good time to get rich :-)
  - greedo 14y ago
    I'd rather be rich at 70, than poor...
    - dennisgorelik 14y ago
      You are not going to get rich for free. That would require extra effort over 40 years. You can put that effort elsewhere, for example launch 5 startups, or have 5 more kids, or extra vacation every year.
  - teamonkey 14y ago
    After investing $4700/year for 40 years you still won't be rich. The amount I could withdraw each year would still be much less than my current middle-class salary. In other words, I'd have less income than I do now. In fact, I need to squirrel away a very large proportion of my salary to retire and be better off than I am now. I can't afford that, which is the point. The middle class is too poor to ever be rich.
- psykotic 14y ago

dionidium 14y ago

Poor people are poor because they don't make as much money as the middle class. Middle class people are middle class because they don't make as much money as the rich. You can't explain that away by criticizing questionable spending at the margins.

greedo 14y ago
I'm not criticizing them for questionable spending at all. They simply don't have the capital to take advantage of better purchasing options.
- larrys 14y ago
  "They simply don't have the capital to take advantage of better purchasing options." Similarly they will buy a used car at an inflated price because they are lacking the dollars to purchase a new car and/or have the credit to do so. Having more money gives you the flexibility to consider all options at least. If you don't have the money you're not even in the game.
  - dionidium 14y ago
    I get that you're trying to make a larger point, but this isn't a very good example with which to do it. Used cars are nearly always a better value than new cars.
- drostie 14y ago
  Look, (a) you screwed up the numbers. You should not be comparing, in this hypothetical scenario, 1.33 with 1, but rather 1/(1 - 0.33) with 1.33, which is instead 0.1625. That is, "these people who don't understand the numbers involved" in the above article includes you. :P And the article above does not make the pretense that this is a uniform problem affecting all of the consumption of the poor; rather just that certain deals may be irrationally treated because of how they are phrased. There is no mythical 33%-across-the-board discount for the poor at stake here; at best it's a 16.25% discount available in very limited circumstances. The real point of the original article was that many people seem unable to determine the difference between 1/(1-0.33) and 1.33, which is only a 16% increased-cost gap (b) It would be very tough to make these economics work out in the present market where even 5% returns seem overoptimistic. Suppose you could reliably convert a poor person into a rich person (and I'll take a modest $200k/year income to define "rich"), by giving them $5k per year and making sure that they spent it on "the right sort of thing," banks could probably do it. I mean, just imagine making this pitch to a poor person: "I'm going to make it so that in 10 years you are earning $200k/year, and then I will take $20k of those every year for 20 years -- so that you only earn $180k/year -- as payment." To a poor person that's an unbelievably sweet deal. They would take that offer and might even offer a much larger cut of that salary to that bank. Suppose that with oversight the cost to the bank is as much as $10k/year, of which $5k goes directly to the person and $5k is administrative losses in making sure people don't misspend the money. From the bank's perspective that's a 10% return on investment, which is not amazing but not too shabby. Even if it only works 50% of the time, in today's economic climate that easily beats treasury bonds as investments go. It's in the bank's financial interests then to lift people out of poverty with this mechanism. I don't see any banks doing this, and while it may be possible I would guess that it takes much more money to do it.