Reducing Poverty on the Household Expenditure Side

There is a great Brookings Institution report by Matt Fellowes, "From Poverty, Opportunity," that highlights many ways in which poverty can be reduced by helping even out the costs faced by low-income families and individuals with higher-income families and individuals.  The report starts by identifying the key areas on the expenditure side where those with low-incomes are charged more than those with higher incomes: morgages and house insurance, car payments and insurance, short-term lending, appliance purchases and groceries.  He systimatically goes through each area detailing how lower-income people are charged more than higher-income people, for example, by the prevalence of payday lenders in lower-income areas, whereas higher-income people are more likely to use a bank.  Furthermore, much of the pricing difference in the insurance market is due to murky and non-existent insurance disclosure and reporting requirements.  Beyond these, there are five areas where local policymakers can help reduce costs to lower-income people:

• Alert business of opportunity - There is a tremendous area for companies to add consumers if they enter low-income neighborhoods.  Many have been hesitant because of higher actual and perceived risks.  However, there are many ways in which local governments can facilitate their entry, particularly by restricting the growth of the exploitative loan/rent-to-own companies in lower-income neighborhoods
  
• Eliminate unscrupulous businesses and high-fee/interest rate lending institutions - Many state and local governments have capped the rates of interest and fees payday loan, auto title loan and check-cashing companies can charge.  Other governments have either banned them entirely or issued a moratorium on issuing licenses for these companies.  With regards to rent-to-own stores, many states and localities have restricted the interest and fees to a percentage of the total worth of the item being purchased. 
  
• Encourage companies to develop products designed for low-income consumers that undercut payday loan institutions - With their tremendous financial resources, if banks open branches in low-income neighborhoods, they could increase their profitability by offering services that compete and undercut the existing payday loan companies and therefore reduce their presence and increase the experience of lower-income consumers with mainstream financial institutions, as well as saving consumers money.
  
• Increase grocery store sizes in lower-income neighborhoods - The data show that smaller grocery stores, which are more likely to predominate lower-income neighborhoods, charge higher prices than larger stores.  Often zoning regulations restricts their presence.  In most areas, consumers want larger stores, but not supercenters like Wal-Mart.  Therefore, policymakers can alter zoning regulations to allow larger grocery stores, while still restricting or preventing the growth of supercenters in these areas. 
  
• Assist low-income consumers in financial education and price comparison - The internet is a powerful tool for price comparison and the spread of information like financial education, both of which would allow lower-income consumers to save money on the necessities.  If the internet is made available in lower-income areas for free with publicity about the areas in which consumers can compare prices and get financial education, the positive impact would be quick and meaningful.
  

This report demonstrates how a series of policy changes can reduce excess expenditure of lower-income consumers and free up resources to allow them more flexibility in terms of savings, which will help them increase their income in the long-term by increasing their skills and education, increasing their savings or allowing them to buy a car or a home.  It is an invaluable report and although it's long (80 pages), it is very illuminating.