Recently, Joan Grant, an A4R volunteer has been taking part in the Community Money Mentors programme that we are running with Toynbee Hall.
People on low incomes pay far more than better off people for good and services. Depending on how you calculate it, the poverty premium, can be anything from £490 to £1,300 a year. It relates to about 5 different areas of good and services.
The poverty premium mainly relates to 5 specific goods and services, as set out below.
High cost credit Payday loans, door step loans, sub prime credit cards and personal loans all have very high rates of interest. Better off customers are able to secure credit at much lower rates of interest. The official interest rate of 0.75 is not relevant to people who have to obtain high cost credit. Interest rates in this sector is determined by what the market will bear.
Pay Day Loans An APR of 1250% is quite typical.
Door Step Loans Provident is a major supplier of these loans. An APR of 1557% is quite typical.
Sub Prime Credit Cards The Vanquis Credit card, (supplied by Provident), is just one example.
Rent to buy Bright House is a key provider in this sector with 70% of the market. Interest rates of 69% are quite a lot less than pay day loans etc. Deals are structured over a 2 or 3 year period with insurance and other charges built into it. The result is that low income consumers pay significantly over the odds for items such as fridges and washing machines.
Pawnbrokers and Cash Converters Both typically will charge high rates of interest. Cash Converters charge fees in respect of their loans.
Loan Shops In low income neighbourhoods such as Kilburn, there are high street loan providers. I noticed 3 on the Kilburn High Road, The Money Shop, A and T Pawnbrokers and Oakam.
Credit Unions are one of the few options for people with a poor credit record.
Utility Bills The best deals are generally available online. It is harder to switch if you have moved around a lot and don’t have good credit. The tariff on pre-payment meters is higher than on normal bills.
Shopping Supermarkets use a bewildering array of tactics to part shoppers from their money. They are professionals. Busy mums don’t stand a chance. Who has time to work out if 6 bananas for a pound is better value than loose at 49p per kilo? Many people still don’t think in metric terms. If you shop online, you will be less subject to children pestering you at the checkout. If you have a car you can travel further afield for bargains and stock up more.
Insurance Car insurance is compulsory. It is priced by insurance companies as they see fit. Premia will be higher for people living in low income neighbourhoods. Ditto household insurance to some extent, though that is at least optional.
Cars Cars are increasingly leased rather than sold. This does meant that monthly payments are lower, but you don’t own the car. You have the option to buy the car at the end of the lease but this will require quite a large payment. I would also add parking fines given the way a simple fine can escalate to a vast sum.
Give your finances a detox and join the next Community Money Mentors programme!
The course provides a range of useful skills: setting a budget, understanding APR, becoming more aware of the poverty premium which is the subject of this article. We also look in detail at the tactics that supermarkets use to entice shoppers. Participants on the course are invited to join together to take practical actions to raise awareness of these issues within their own community.
The people on the current Community Money Mentors course will be trained to deliver the programme over the Spring of 2019.
Please look out for details of forthcoming courses in Brent.