Poor American Spending Logic

When people get on the subject of welfare and basic income, I hear a lot of complaints about how poor people tend to be bad with money.  There are a handful of complaints that are so common they are practically cliche.  One is the complaint that poor people use food stamps to buy lobster or other expensive foods.  Another is that poor people use food stamps to buy a lot of soda and junk food.  People like to complain about how poor people do not put money into savings or investments.  I also frequently hear complaints about poor people not working full-time jobs.  Of course, there is also the complaint about poor people having seemingly expensive possessions.  These complaints seem to come from conservatives more often than liberals, but I hear them pretty regularly from liberals too and sometimes even from progressives.  The fact, however, is that poor people generally are not bad with money.  In fact, in my experience poor people are better with money on average than middle class and wealthy people!

The food stamp complaints are both pretty easy to explain.  Food stamps are a program intended to supplement the food budget of a family, so they can afford more healthy food.  For some, more healthy may mean the difference between not enough and enough, but often it just means topping off the food budget to allow the purchase of fresh vegetables and other healthier foods.  Unfortunately, most poor people do not need more food.  What they need is money to pay for insurance, a new set of clothing, some money to help cover rent, some money to pay for utilities, some money to pay for car repairs, some money to cover home repairs, and some money to pay for repair or replacement of essential appliances.  When a family gets food stamps, that family typically starts spending less "real money" on food, to reduce other financial burdens that food stamps do not cover.  The quality and quantity of food purchased may remain the same.  Further, most poor people do not have terrible diets to begin with.  Studies have found that poor people tend to have very similar food purchasing habits to middle class people, whether they are on food stamps or not.  On top of that, food is the single easiest kind of welfare to get.  There are soup kitchens, food banks, food drives, and religious food charities in most places in the U.S., where poor people can get enough food to stay healthy, and these sources tend to provide far healthier food than most people choose to purchase.  Thus, even studies on what people buy with food stamps tend to underestimate the health value of the food they are actually eating, because those studies do not account for the fresh produce and other much healthier foods poor families are getting from various charities.  Very few families get exactly the right amount of food stamp money.  Many get significantly less than they need, relying heavily on food banks and religious charities for fruits and vegetables and other healthier foods, while using the food stamps to purchase everything else from the store.  Others get more than they need, especially after accounting for other sources of free food.  These families face a few options.  They can spend all of the food stamps on the cheaper products they would normally buy, getting more than they can eat and either collecting more and more food until there is no room left for anymore and they have to start throwing away some of it, they can just not spend all of it and collect more and more unused food stamp money that the state will eventually seize once they no longer qualify for food stamps, or they can buy more expensive foods, so they maintain the same amount of food purchased while still spending all of their benefits.  There is no financial benefit to saving the money or buying and later throwing out surplus, thus the wisest decision they can make is to buy more expensive food.  Likewise, if those who are not getting enough are buying more calorie rich foods, typically considered junk food, to ensure they are getting enough to eat, that is also the wisest choice they could make.  Yes, junk food does not have all of the necessary vitamins and minerals, but humans can survive much longer with vitamin deficiencies but eating enough calories than they can getting enough vitamins but not enough calories.  The fact is, whether they are buying lobster and filet mignon or soda and potato chips with food stamps, poor people are actually making the best financial decisions given the resources available to them and the limitations imposed on those resources.

The reason poor people do not save or invest has nothing to do with capacity.  It is easy to look at the budget of a poor person and find places where he or she could save money.  Further, poor people are not choosing not to save due to stupidity, poor financial skills, or lack of financial knowledge.  Poor people do not save money because it is illegal.  The fact is, to qualify for welfare, you may not have cash or assets worth more than some threshold.  A family that saves money will easily amass enough to exceed that threshold.  If that money is in investments or a bank account, Department of Health and Welfare investigators will discover it and deny welfare.  This denial of welfare will force poor people to draw from investments and savings to pay the bills until they are practically gone.  At this point, they can qualify for welfare, giving them enough income to save again, until they exceed the thresholds.  This leaves them with only two options.  They can live on a more frugal budget, forgoing wants and less important needs while they are on welfare, so they can save money, and then live on that same frugal budget once they no longer qualify until their savings and investments are gone, in an infinite cycle, or they can just not save, living on a higher budget with welfare indefinitely.  In the first case, they live on a smaller budget and never amass significant savings, and in the second case they live on a larger budget and never amass significant savings.  Again, the wiser financial decision here is exactly what they are doing: Not saving and not investing.  Of course, they could just take the money out in cash and stuff it in a mattress, but it would be against the law not to report that money, and if it was ever discovered, they would never qualify for welfare again, and they might be required to pay back all welfare benefits they have ever received.  In other words, the only option poor people have for saving or investing is illegal.  Again, poor people are making the wisest financial choice available to them, and any poor handling of money is being done by fairly wealthy elected representatives, not by the poor people themselves.

Poor people choosing not to work full-time jobs is actually a fairly well understood phenomenon, and anyone complaining about this as an instance of poor people handling money poorly is either stupid, ignorant, or deliberately spreading lies to encourage discrimination and prejudice against the poor.  Most U.S. welfare programs have hard cutoffs where benefits are reduced or withdrawn entirely once a certain income level is reached.  A person working 20 hours a week near a threshold will be in a hard position, where increasing hours or pay will cross a threshold, reducing welfare benefits by far more than the earned income increase.  In this situation, the best financial decision is to refuse additional hours, promotions, and raises.  This is the poster child for the "welfare trap", though is it hardly the only place where people get trapped in the U.S. welfare system.  For some reason, despite how well known this is, U.S. lawmakers have such poor financial skills that they are incapable of implementing any of the numerous viable solutions to the problem.

Poor people in the U.S. often have fairly valuable possessions, or at least, they have possessions that others view as valuable.  The most cliche complaint I have heard about this is women shopping at Walmart, who pay for their groceries with food stamps while talking on an iPhone. This reveals some profound prejudice against poor people.  For example, this betrays an assumption that everyone on food stamps has always been on food stamps.  A great many Americans are on food stamps at any given time, but a significant portion of those are people who have recently lost jobs and are either looking for a new job or becoming more educated to qualify for higher paying jobs.  Perhaps that woman bought the iPhone six months ago, when she or her husband had a high paying, full-time job, but then that job was lost a few weeks ago, leaving her with an iPhone but having to rely on welfare for food.  Even if she was on food stamps when the phone was purchased though, the ability to afford an iPhone while on an income low enough to qualify for food stamps is impressive!  How does a poor person afford an expensive smart phone on such a small budget?  By careful spending and saving!  That woman at Walmart, checking out with food stamps while talking on her iPhone is very clear evidence that poor people are good at managing money!  If she was bad with money, how would she have been able to afford a phone worth half a month to a month of rent?  The last thing we should be doing is punishing poor people for good money management, and if they can afford expensive electronic devices, they are clearly managing their money well.  What else can they be expected to do with the surplus money they have as a result of wise financial decisions, when they are not allowed to save it?

The evidence is clear: Poor people are better with money than the lawmakers writing and passing the bills that give those poor people welfare.  The financial decisions middle and upper class people decry as evidence of poor money management are actually the best financial decisions poor people can make, within the context of the artificial welfare economy they have been stuck in.

When considering the financial skills of the American poor, it is critical to understand that they are not operating under the same economic conditions that free Americans are.  They are not allowed to save significant amounts of money.  Their spending choices are heavily restricted.  They are punished when they earn too much.  When we judge them based on the economic conditions of the wealthy, who are free to spend and save as they like, poor American spending logic may seem to make no sense and even be incredibly unwise.  When judged on the economic conditions they actually live in, however, most poor Americans are using very wise spending logic.  The average middle class American lives paycheck-to-paycheck on several times the budget the average poor American does.  If poor Americans are able to afford luxuries like iPhones and lobster, that strongly suggests that poor Americans have far far better money management skills than any other income class!