A recent documentary available on YouTube highlights the high cost of being poor.  Spent: Looking For Change, a film sponsored by American Express, explores the financial lives of people who lack access to banks or who have bad credit or no credit.  Here is a basic summary of the important topics covered:

According to the film, approximately 70 million Americans lack access to the traditional financial system.

Why don’t these people have access to banks or to credit?  For a variety of reasons – medical problems resulted in lost income, bad financial decisions were made, etc.  Then bank accounts were overdrawn and eventually closed.  Once debts have gone unpaid, credit gets ruined and it’s hard to fix, even where there is currently a good income and all monthly bills are being paid.  Where a person has large student loans relative to their income, their credit is weakened.  Or those who have never had a credit card or taken out a loan are invisible to the credit reporting agencies and have no available credit.

When people lack access to the traditional financial system, they often turn to check cashing businesses, payday loans, and title loans in order to make ends meet.  These types of financial products cost more in fees and interest than traditional products.  The film tells us that Americans spend about $89 billion a year on fees and interest.

When people don’t have a bank account or a debit card, they must physically go around and pay monthly bills, which costs a lot in terms of gas and time.  Even prepaid debit cards that are funded with cash carry large costs in fees charged for buying and using the card.

People turn to payday loans, which are designed to be paid back on the next paycheck; and title loans, which are loans that use your car for collateral.  If you don’t pay the loan, they take your car.  Many will pay the fee over time instead of paying the original loan off because they can’t afford it.  The original loan is never paid off.

My take on the film is that it is a good overview of how financial products that are designed to take advantage of poor people actually set them farther and farther back.  It’s worth watching because it’s an unbiased presentation of a lot of information in only about 40 minutes.