GardenShare

GardenShare

Friday, February 10, 2017

WHY POOR PEOPLE MAKE “BAD” FINANCIAL DECISIONS


In her new book, The Unbanking of America, Lisa Servon helps to dispel the popular misconception that most poor people and people who use expensive, alternative financial services like payday lenders don’t have enough financially savvy to understand how expensive the services are, or that they don’t handle their finances well enough to have access to cheaper, traditional banking options. In fact, Servon finds, most people who use alternative lenders are all too aware of how finances work and are desperately trying to use a system bent against them. She notes that many people who rely on pricey, short-term payday loans actually have credit cards with lower interest rates that they haven’t yet maxed out. They choose payday loans over credit cards not because they don’t understand how interest works, but because they’re smart enough to know that payday delinquency won’t be reported to a credit bureau in the same way late credit card payments are, thus preserving their credit score which can help them obtain a variety of other necessities including more credit. “What if,” Servon writes, “instead of focusing narrowly on people’s ‘poor choices’ ... we worked harder to understand the options available to people and the context in which they make those choices?”

Source: Atlantic, 1/18/17, The Underbanked