Only Greater Financial Awareness, Education Can Help Lower-Income Americans Rise Above Debt
By Paul RizzoPayday Loan Writer
It seemed like Angela and Edward Johnson’s dream of owning their own home would only remain just that. A dream.
When the child care professional and retired mechanic went house-hunting with a real estate broker, he took one look at their poor credit and flatly predicted they’d never be approved for a home loan. He even suggested the Johnsons find someone else to apply for one on their behalf.
So when the Johnson’s finally moved into their new Suitland, Md., home just outside Washington, D.C. in May, Angela Johnson was downright giddy when they ran into the broker.
“I saw him. And you know I was so proud to tell him, ‘You know we bought a house and let me tell you what the interest rate is,’” she said.
She’s got a reason to beam with pride. The Johnsons beat the odds that are statistically stacked against low-income African-Americans, the Baltimore Times reports.
Research from the Brookings Institution shows that on average, lower income homeowners (defined as those making $30,000 or less) pay interest rates as high as nearly 7 percent, meanwhile people with incomes of $120,000 or more paid a rate of 5.5 percent. The Johnsons were able to secure 4 percent.
So how did they do it, and why haven't others?
Financial empowerment experts and the Brookings Institution’s study say the number one problem is the lack of information. For low-income Americans, there are even deeper issues.
"We really don’t have a history of economic capitalism and free enterprise. And that’s hurt us. We’re experts generally speaking in civil rights, we’re experts in issues of social justice because those are the things that most impacted our lives from the history we have in this country," said John Hope Bryant, the chairman and founder of Operation Hope.
“Even our broad church network was used in the social justice perspective around issues of political empowerment that was a good strategy for the time, unfortunately it didn’t really prepare us for a world and a country that is a democracy rooted in capitalism,” he continued.
Bryant’s goal was to help lower income people take back their fiscal lives and has developed several programs including credit counseling, employment assistance and home ownership classes.
Banking on our Future is another nationally-recognized financial literacy program from Operation Hope geared toward students ages 9-18. It's reached more than 700 schools in the U.S. to date, teaching them about the dangers of consumer debt and bad credit.
Home buying isn’t the only area where lower income people are getting bad deals. Lower income homeowners can pay as much as $300 more for home insurance than those in higher income neighborhoods, and when a lower-income person walks into a car dealership, that person will pay $50-500 more in prices and an extra two points in interest on a loan.
A bevy of car-title loan operations, check cashing stores, businesses offering payday loans and rent-to-own furniture businesses are also major contributors draining the pockets of low income people, says the report.
Most customers of check-cashing businesses and stores offering no faxing payday loans earn annual incomes of less than $30,000 and to cash a $500 check, customers would pay an additional $50-60 in interest, on average.
Kehinde Powell, the manager of the D.C. Hope Center says she sees how hard it is to break the payday loan cycle, and how many people are struggling everyday because of what she calls "massive consumerism and bad priorities."
Powell said the number one thing low income people spend their money on is eating out and clothing. One client she had spent at least $600 a month for drinks and food at night clubs.
In order to survive, avoid consumer debt and better themselves financially, the number-one thing lower-income Americans can do is be aware of their surroundings — as well as their options.
“We’re not dumb and we’re not stupid,” Bryant said. “We’re very savvy. You have to be very smart to survive poor in America. It’s what we don’t know that we don’t know is what’s killing us.”
