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1. Food costs

Food is one of the biggest costs for any U.S. household, but the bills can rack up further for lower-income folks who live in areas underserved by large grocery stores.

Chains like Costco and Trader Joe’s tend to avoid establishing a presence in poorer neighborhoods, creating food deserts, which means the people who live there have to resort to gas stations, convenience stores or pharmacies. These smaller stores, O’Brien says, tend to impose higher prices on the same items you can buy at bigger chains.

Citing figures from a 2014 Minneapolis-St. Paul survey, he shows a box of Cheerios would run $7.41 at a small store versus $4.82 at a large one, while a pound of bananas would mean the difference between $1.187 and 77 cents. Although the data is old, O’Brien’s point holds water — shop at a tiny store instead of a full-fledged grocery store and you're going to get socked.

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2. Banking

Banks charge consumers overdraft fees when they withdraw more money than they actually have in their accounts. These fees vary by bank, but will typically cost you around $35.

O’Brien says banks made about $10 billion in overdraft fees both in 2021 and 2022 — although these fees actually totalled $7.7 billion in 2022, according to the Consumer Finance Protection Bureau.

Still, he’s correct in sizing up the problem. If you’re poor, you’re more likely to drain your bank account and overdraw to cover your costs, incurring more fees as a result.

3. Payday lenders

Payday lenders front customers quick cash which gets leveraged against future paychecks — but these short-term loans also come with extremely high fees.

O’Brien calls them “really kind of disgusting” and “predatory,” since lenders can potentially charge you fees equivalent to a 400% or 500% APR in exchange for a couple weeks of breathing room. What’s more, dependence on these loans over time can create a vicious cycle of debt, he notes.

Plus, if you can’t pay off your loan on time, the lender could try to withdraw funds directly from your bank account or even outsource your debt to a debt collector.

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4 Motor vehicle tickets and assorted fines

O’Brien uses the example of a $100 parking ticket. No matter who gets it, that ticket will set them back a Benjamin but it hurts a poor person — making, say, $400 a week — much more if you look at the fine as a proportion of their income.

That said, there have been some exceptions provided for low-income motorists in cities such as Chicago. Under the Windy City’s Clear Path Relief Program, people who pay tickets accumulated in the last three years are forgiven for all older violations.

5. Regressive taxes

Regressive taxes, which are taxes that get assessed regardless of income, also tend to hit lower-income folks harder since they take a larger chunk out of their paychecks.

O’Brien names the infamous Philadelphia “soda tax,” which was instituted in 2017 to improve people’s diets.

It tacks on an extra 1.5 cents per ounce on sugar- and artificially sweetened beverages, which means if you’re purchasing, say, a 64-ounce bottle of Pepsi that originally cost $1.50, you end up shelling out about $2.50 instead.

6. Credit card processing fees

O’Brien calls credit cards a “secret tax” because many consumers don’t realize how much they’re paying to use them (or not use them) at the checkout counter.

He references a Boston Fed study from 2020, which found higher-income Americans pay $13 less on average through retail prices, while lower-income consumers pay $0.60 more. This is because merchants have to pay processing fees every time you purchase items with a credit card — and pass the costs onto the consumer, by way of higher prices.

Now, higher-income consumers, who are more likely to qualify for and use credit cards to earn cashback, points and Air Miles, typically offset the costs through their rewards. But lower-income folks, who are less likely to qualify for credit cards, or cards with higher reward levels, are more likely to pay with cash or debit while still taking on the higher costs.


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Lou Carlozo Freelance writer

Lou Carlozo is a freelance contributor to Moneywise.


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