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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 th

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.
  - greedo 14y ago
    a) The article didn't say anything about the poor, nor did I say that it did. I simply made a correlation about how the poor are unable to take advantage of significant discounts due to capital constraints. And the example I was using didn't use the phony discount but the true discount offered by volume. Pay attention... :p I understand the differential between the two pricing strategies perfectly well. b) I also never said nor implied that saving $200/month would make someone rich. But to dispute that there would be no improvement in a family with an extra $2400/year is silly. If you believe that to be the case, please send me a check in that sum. ;p And further, you can't use the present market to determine long term returns. Today's market is quite lucrative if you pick the correct investments. If you just follow the Dow or NASDAQ up and down, day trade, or let management fees eat up your seed corn, you're at the whim of the market.
- dionidium 14y ago
  That's clearly true, but the following statement: And this is why many of the poor stay poor, and many in the middle class stay middle class. ...does not follow. The outlook for a typical working-class family living paycheck-to-paycheck isn't going to be materially improved by better purchasing options (because they don't have a lot of money with which to purchase things in the first place). As a sort of reductio proof, imagine I gave you $500 to live on for an entire year. What good would better purchasing options do you? If you're merely trying to say that you'd be better off with more money, well, yes. But better purchasing options aren't going to move you into the middle class.
JoeAltmaier 14y ago
Sure you can. Being bad at earning and saving means you are always struggling, stuck in that state. A poor person wins the lottery, and is poor again in a year. So habits work that way too. If you can't plan for the future, consider interest and principle and the time value of money, then you're doomed to poverty.
rprasad 14y ago
He's not criticizing the poor or middle class. He's simply noting that they frequently lack the resources to take advantage of these types of discounts. Even a 99% discount is useless if you don't have the resources to afford the 1% post-discount cost.

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.
- greedo 14y ago
  a) The article didn't say anything about the poor, nor did I say that it did. I simply made a correlation about how the poor are unable to take advantage of significant discounts due to capital constraints. And the example I was using didn't use the phony discount but the true discount offered by volume. Pay attention... :p I understand the differential between the two pricing strategies perfectly well. b) I also never said nor implied that saving $200/month would make someone rich. But to dispute that there would be no improvement in a family with an extra $2400/year is silly. If you believe that to be the case, please send me a check in that sum. ;p And further, you can't use the present market to determine long term returns. Today's market is quite lucrative if you pick the correct investments. If you just follow the Dow or NASDAQ up and down, day trade, or let management fees eat up your seed corn, you're at the whim of the market.
dionidium 14y ago
That's clearly true, but the following statement: And this is why many of the poor stay poor, and many in the middle class stay middle class. ...does not follow. The outlook for a typical working-class family living paycheck-to-paycheck isn't going to be materially improved by better purchasing options (because they don't have a lot of money with which to purchase things in the first place). As a sort of reductio proof, imagine I gave you $500 to live on for an entire year. What good would better purchasing options do you? If you're merely trying to say that you'd be better off with more money, well, yes. But better purchasing options aren't going to move you into the middle class.

JoeAltmaier 14y ago

Sure you can. Being bad at earning and saving means you are always struggling, stuck in that state. A poor person wins the lottery, and is poor again in a year. So habits work that way too. If you can't plan for the future, consider interest and principle and the time value of money, then you're doomed to poverty.

rprasad 14y ago

He's not criticizing the poor or middle class. He's simply noting that they frequently lack the resources to take advantage of these types of discounts. Even a 99% discount is useless if you don't have the resources to afford the 1% post-discount cost.