Being poor for a few hours
Recently I had an interesting experience being poor. It didn’t last too long but it was quite distressing and I learned how difficult this is. The story is as follows. I was out of the country for a month and during that time my car insurance expired. When I got back I called my insurance agent and I asked them to renew my policy. “No, no, no, ” they said, “If your insurance has elapsed you can’t do it over the phone and you have to come to our office in person.” Well at that time I was living in Princeton and my insurance agency was 300 miles away in Boston. So I took the train up, got to the insurance office on time and I was ready to hand them a check and renew my insurance.
Well, here again, I was wrong. It turns out I could not do it by check. The insurance company would not take a check from me because, after all, I have shown I am financially irresponsible. “Will a credit card do?” I said. “Of course not. Only cash.” The limit I can take out with my ATM card is $800 a day and the insurance was almost $3,000 (needless to say they also increased my premium). So I could not solve it this way. “Luckily” the insurance agent had a solution at hand that was designed for this very particular problem. There is another company they told me that would finance my insurance fee. Interestingly enough, the cost of this financing included 20% interest rate on the loan itself plus a $100 fee just to enroll in this program.
I had no choice but to take this particular loan. So I paid the $100 fee, I paid the 20% in interest, and I got my insurance. I took the train back to Princeton. A few days later, of course, I canceled this terrible loan and paid it off. But here is what I learned from this distressing lesson, the moment you make one financial mistake the chances that you will be hit with all kinds of fines, all kinds of difficulties, all kinds of financial obstacles, are much, much higher.
If I was on the verge of financial difficulty there is no question that this particular incident would have pushed me over the edge, making my financial life much more difficult and maybe even impossible. I think that this is, in fact, what we do to people with financial constraints all the time. We impose substantial penalties on the people who violate financial responsibilities, not taking into account their viability and therefore make their lives much, much worse.
How can we get over this issue? I think we have to reconsider the punitive systems all the financial institutions use (insurance, banks, credit cards, etc.), and think more carefully about how we want to share responsibility and payment across people. After all when someone goes bankrupt, they of course suffer, but so does the whole system around them. From this perspective, it is easy to see how the punitive systems we are using are not only bad for the individuals but they can be very damaging for the whole society.
The Honest Truth About Dishonesty: How We Lie to Everyone - Especially Ourselves
Excellent post and points that are very well made. You can imagine the further damage that could be done if these “defaults” become “digital artifacts” and forever associated with your “good name”. There is a book called nickeled and dimed that would put the shivers into you: http://www.nytimes.com/books/01/05/13/reviews/010513.13gallagt.html
I recently had a somewhat similar experience with my cell phone company (although in my case the fault was arguably theirs, though I could not get them to concede this).
When companies pull this crap, I go to all possible lengths to never to business with them again, and I feel strongly that you should find another insurance provider ASAP, for the common good.
Interesting post – the intro kind of left a funny taste in my mouth: I was poor for a limited time and I found it distressing … I was all set to say something snarky, about princeton and overseas travel and privelege -
but then I was reminded of my own whinging about poverty as a grad student (truly, it stinks and financial mistakes do compound rapidly – it’s almost as if one is a target and there are trapdoors set just where one is predicted to step) -
and I thought how fortunate it is to be “poor” … but not “for too long.”
While I sympathize with the victims of these penalties, how do you suggest we fix it?
Poor people are bad financial risks. If we want financial services to do business with them, don’t they have to balance the higher risk with higher fees?
Or should they raise everyone else’s premiums, so we can subsidize the poor people? Welfare is usually expected to come from the government, not the commercial sector, so maybe the government should provide these subsidies (federal taxes are already graduated).
I don’t get it. What respectable insurance company doesn’t automatically renew your car insurance?
“I was out of the country for a month and during that time my car insurance expired.”
I suggest finding a new company to insure your car. This is utter nonsense. They wanted a lump sum payment for the entire year? Who does that?
You’re a much more patient customer than I would have been under that circumstance. A proactive, customer service oriented insurance agent would never have let your insurance lapse without contacting you to secure the renewal. What penalty did your agent face for letting coverage on a steady customer falter? Your experience serves as a lesson – but imagine if there had been a catastrophic event during the time you were uninsured? It is too easy to go from poor to worse in these situations.
I’m currently poor financially but very rich with ideas for the future. I work on the most advanced project on the planet today and only need about a billion more dollars to implement it.
I just finished reading Predictably Irrational and oh so wish you understood what I do about thinking and decision making. You can read my book at http://www.vias.org/beyinfoage/ and wait for a much better book I am publishing soon.
You must learn the difference between knowledge and understanding. Its very important.
Enjoy!
What kind of auto insurance costs $3,000?
This thought process, although nice and “good for society in general,” lacks teeth. These penalties are not set in place and/or enforced simply to punish the poor or further harm those who have fallen. They are measures taken to ensure that those who are taking on financial burdens (aka borrowers, mortgagors, insureds, etc) at the risk of others (aka lenders, insurers, credit card companies, etc) will do everything in their power to prevent default. They are meant to deter people from taking on more than they can handle and simultaneously give notice to future lenders that these defaulters are not good investments. As a bonus, they also lend to deter others not part of the defaulted transactions from repeating others’ mistakes because they see the harmful results from such irresponsible acts.
As much as love and hope are uplifting and great for inspiration, they do nothing in the real world to help business and lives flourish. If these penalties were not enforced, how would society as a whole know whom to lend money to and whom was uncreditworthy? Of course if you default on a payment surcharges will accrue, your credit history will take a hit and your financial value to society is strained. But without such systems in place, society would freeze and lend no money to anyone – somewhat similar to the deflationary spiral we’re in right now. Yeah, it sucks to be the person who can’t seem to get a grip on things and as a result you’re punished even more… it’s a snowball effect. But, in the alternative, it’s much more beneficial for society as a whole to punish one individual than to shut down the society all together. This would only lead to widespread pain, suffering, injustice, crime, political instability and eventually demise.
I have not read your book, but was considering doing so before that introduction turned me off. To each his own.
Read the book Adam.
Those fees and penalties do not truly deter. They merely enrich the companies at the expense of their clients. Being poor does not automatically make them high risk or poor investments. Look at the growth of Micro loans worldwide. These loans are made to the poorest people in the poorest countries and they have excellent records of repayment. Before fees and penalties became so high, we had better repayment rates. Again, the fees and penalties are disincentives that garner huge profits.
Those systems and financial giants you so worship have caused our current crisis through rampant greed. The use of derivatives and credit default swaps to create more financial instruments solely for the purpose of generating more fees and income put us in this position. The government giving those same companies Bailout money is allowing them to continue with business as usual and protecting them from taking the losses they deserve. We spend too much time in this country penalizing the less fortunate all the while rewarding the fortunate for their bad behavior. Let’s get back to the rule of law and have that rule apply equally! Individuals are charged fees,lose credit rating, and file for bankruptcy for making bad decisions but companies get Taxpayer money to avoid the same penalties. aarrnnggh! Where is the outrage?!?!
Dan,
I have to ask: when did AT&T start selling car insurance?
Cheers,
J
Do you know that you could have called your bank to temporarily lift the daily $800 limit to $3,000 in your ATM card?
Also, you could have gone to another agency, they would have gladly give you another insurance for some $200-400 in cash up front.
Seems like you didn’t explore all of the options and your insurance company was happy to take advantage of the situation. At least, you should take your business somewhere else.
Should have dumped your insurance company. There are many companies out there, all fighting for your money.
Also… those fees and rates are there for a reason. You’re getting someone else to front the CASH for your auto insurance! It’s an unsecured one-off loan. It’d better contain a bunch of fees and high interest rates!
Jeez.
My insurance company allows yearly, quarterly, or monthly payments and provides me an incentive to pay for the year in advance – the “rate of return” is both higher than the long-term stock market average and guaranteed. (If I cancel, I do get a prorated amount back.) This assumes of course that I’m getting a benefit versus monthly payers getting screwed.
Similarly, if I choose to take the “dividend” option and pay more up-front, they will give me a “rebate” at the end of the year. I do a similar calculation and it always makes sense, since I have the cash.
It’s obviously easier to save and “make” money (or avoid fees) when you have cash on hand – the nickels and dimes penalties add up.
You’re starting to see this more and more with hotels now too – pay upfront and get a cheaper rate, with a $ penalty for cancellation, or pay more but have flexibility. It’s a “benefit” or “annoying” depending on your point of view and commitment to the reservation.
This concept of mentally balancing these monetary trade-offs would be another interesting area of study – if you have the money vs. you don’t vs. what if you had it.
You didn’t have an experience being poor. You had an experience being dumb. Or, more charitably, you had an experience being ignorant.
Questions you should have asked yourself:
Why is my insurance agent 300 miles away? The only reason to have your insurance agent that far away is if he is your brother and/or he gives you absolutely amazing service. And if he wants you to pay, in advance, in person, by definition he is giving you absolutely terrible service.
Also: ATMs have daily limits. Bank tellers do not. Why not go to your bank and withdraw the money? If the nearest branch of your bank is 300 miles in a different direction, and why shouldn’t it be, go to another bank and pay the $30 or whatever to get a cashier’s check or money order.
Also also: Why $3000? Are you paying a year in advance? On five Rolls Royces?
The lesson learned from this isn’t: “Boy, it is hard to be poor.” The real lesson is: “Boy, my insurance company sucks. I should have switched to someone else before I spent the money and time on a 300 mile train trip.”
I came here via link from Felix Salmon’s site and thought this was just a hard luck story from some extremely disorganized random person.
Then I found out it was actually a well known intellectual who has written a best selling book that apparently is being taken as some kind of guide for public policy decisions.
Our nation may be in even more trouble than I thought.
Could the whole debacle been avoided by simply having pre-authorized payments in place so that the insurance wouldn’t expire?
Or, could you have pre-paid, knowing that you were going to be out of the country on the expiry date of the insurance?
?
Good to see you spitting it out on NewsHour.
I’ve been talking about “induced powerlessness” for ?what? decades.
Until and unless it matters, it … well … it doesn’t matter.
As I turned away from “concept mapping” as a method for discourse, so I turned away from this exposition as a means to serve the body politic.
We need to deal with the over-burden … in-group/out-group dynamics … “dems” hatefully condemning racists for being hateful, &tc &tc ad nauseum.
Self-interest … the fabled “pursuit of happiness”.
Kant’s imperatives, finally.
If you tell a fool he’s being foolish *rim shot* he’ll call you a fool.
The Republic is sick.
To me it looks like Al-queda/Taliban game, set, match.
As a Buddhist? It’s a dark age, ayup.
cheers
–bentrem
RE: Kevin M
Try insuring with Commerce Insurance Company if you live in the city of Boston. The rate for above-minimum coverage will certainly be around $2500.00 – $3000.00 if you insure with Commerce.
The poor are not as high risk as most people think – read BANKER TO THE POOR by Mohammad Yunus.
The only people who can actually get loans are those that already have some sort of collateral. And then they default anyway.
Dan,
You have an excellent point. I would just point out that in some parts of the country your situation would have been even worse.
I live in the South, more specifically Georgia. Public transportation here is extremely scarce, most places are unreacheable by trains or buses and the places where you can reach with public transportation options have few offerings, and it takes forever to reach them.
I had a somewhat similar experience a few weeks ago. I lost my wallet. This means, I lost my drivers license and all of my credit and debit cards.
I needed a new drivers license in order to get new cards. But I could not pay the $5 fee for a new license before I could get my debit card. I needed my debit card to get a license and I needed a license to get a debit card.
Even though these are annoyances for most of us. For those who do not have reliable transportation, or do not have access to even $5, they encounter a lot of barriers and difficulties that we do not even realize.
“We impose substantial penalties on the people who violate financial responsibilities.” Not all people, just poor people. Bankers and brokers who have been financially irresponsible are getting hundreds of billions of dollars.
Whomever wants the deal more is the one who pays the most. If not for your “need” for the auto insurance, you would never have agreed to such usury.
What would have been the outcome and the reaction of the insurance company had you told them their “requirements” were excessive and not conducive to good customer relations and you were taking your business elsewhere?
Or was taking your business elsewhere an option? Too often with the “poor” their options are binary – take the deal or go without.
I’d be interested in the Predictibly Irrational examination of the consumate salesman. There are tricks of the trade they all use. The one I remember from my brief time as a cosmetics consultant was the one who speaks last is the one who goes home with the product.
In this capitalist country money is perceived as power. Therefore the reason for so much greed among Americans. Forcing people into powerlessness is a way of life here in the good U S of A. It has nothing to do with rationality.
We recently switched from our long time premium auto insurance company to a cheaper one that advertises a lot, based on a reference from a friend who uses the new company. Everything was done either on the phone or internet. I think in the past folks were irrational in the sense of letting non-financial reasons,inertia, and a perception of a personal relationship with the agent (“Isn’t Mr. Madoff a nice man! Let’s keep investing with him!”) keep them going back to the same provider — multiple policy or long time “discounts” masking increasing rates. One lesson here is to shop around, and possibly to automatically renew, and have monthly or quarterly premiums charged to your account.
A related problem I am having: my health insurer had an audit firm send a letter to my home asking me to sign a form indicating whether I had “other health insurance.” I indicated I did not, signed it and mailed it back. A month later, I get a mailing claiming they are “not honoring” my policy because I “did not” respond to their survey. I mailed it with a first class stamp the day I got it, but it had a one week return deadline in the letter, and sometimes I am away for two weeks or two months. My sense is that individuals and families will be switching insurance providers to get better rates, while agents and insurance companies will be looking for ways to deny or avoid payments, because they are short of cash or want to earn a little more interest on it before paying claims. Everyone will need to be more on their toes as the economy worsens.
Progressive.com (no affiliation)
Welcome to the 21st Century – shop online, compare rates, pay by credit card.
Dear Dan – I can hardly believe it: Here in “Old Europe (Germany)” the insurance contract is prolonged automatically and the agent receives the money via banking transfer even in my absence, using my regular credit line. The premium for my Audi A 6 is not even a quarter of yours! Take this incidence to immediately transfer to another insurance company resp. agent for a more competitive alternative. Your observations about punitive fines for those who do not own money, are true, sadly.
Interesting revelation, but sort of in the Duh!! category (made it into the dictionary in 2001)- which is in and of itself a sign of the times. . .
The punitive aspect mentioned is consistent with current American society, as we incarcerate more people than any where else on earth.We build more cells than we do homes.
On the financial front,finance and insurance companies are not immune to those techniques which ensure their cash-flow at the expense of yours – how else could they protect their own real estate interests and continue to make America top-heavy in wealth, again at the expense of everyone else.
I included the financial industry because that’s all both of them are. To make you a customer(among tens of thousands of others)and then exploit that “responsibility” so that they can continue their own portfolio diversification, even as more of you cannot.
Risk management of you becomes merely money management for them. Pure and simple !!
But, as we are now experiencing with Wall Street, to have the sort of power that lets a mere company push people further down the “chain” simply due to very accurate recordkeeping, even while they cannot keep adequate control of themselves, is itself in dire need of an overhaul.
Interesting revelation, but naively overdue !
Kind of a “wake up and smell the coffee” theme. . .
“You didn’t have an experience being poor. You had an experience being dumb. Or, more charitably, you had an experience being ignorant.”
The headline of this post shows such a lack of understanding of ‘being poor’ that it’s shameful.
1) My state requires 30 day and 10 day notice before your payment is due, to warn you about loss of coverage.
2) If I deposit a check that bounces (I run a small business, and deposit about 30 checks/day) why do I as well as the check writer get penalized? It seems to me the check writer should get penalized double. The banks know full well that there is no way to check if a check is going to clear, without knowing what other checks on that account are out there!
Dan,
Good post. Some have responded to the mechanics of your situation. You are actually speaking about the feeling of helplessness you experienced (regardless of whether it was self-inflicted, or whether you could have gone another way.)
I had a similar experience only a few months ago. My credit card company (Advanta) sent one of those innocuous tri-fold inserts (written in a 3pt font) into my monthly bill. Stated on page 4 was that the rate was going up from 11.99% to 30.99%. No explanation… Just that it was going up. But, in the smallest of type, it generously informed me that if I do not charge anything else on the card my 11.99% rate will be frozen. How nice. Of course, I didn’t read it because they send one of these every few months or so.
Well, as most of us in this cashless society do, I have several monthly automatic charges on this card. Once the first one hit after the effective date, WHAM, up to 30.99%. When I got the bill in, I called Advanta and asked what was up. Could we negotiate? They gave me some song and dance, so I asked to speak to a supervisor. I finally was put in touch with the shift supervisor who informed me that a Credit Committee had determined that I needed that rate. By this time I had figured out that the reason it had gone up was that I was within some magic percentage of my credit limit. I had been using this card for my business and it had almost $30,000 on it, but I had NEVER been late in monthly payments.
I asked this supervisor how the Credit Committee figured that if an individual had run their card up to, say, 80% of the limit, ostensibly because they had ‘financial needs’, that jacking the interest rate from 12% to 31% would make their financial situation any more ‘workable’. She, of course, had no answer and kept repeating the mantra that she had no control over it and that I could not speak to the Committee. That was it. End of discussion.
I got rather ugly with her (not usually my nature) and after slamming the receiver on the phone, promptly wrote that disgusting company a check for the total amount due. The next month, we got a bill for $1.23 for the outstanding interest that we missed in the payoff. How trivial!
I was fortunate that I had the money. In my 25+ years in busines, I have rarely had that kind of money laying around (and you know how much Uncle Sam can screw you if you make a decent profit), but it made me think what kind of infinite barrel I would have been over if I could not have paid off that card. 31% per annum of $30,000 is a hell of a lot of money to pay interest on each month. Basically, I could have never paid it down. It would have been like wiggling in quicksand. I imagine millions of Americans are in the same boat, with maxed out credit cards, Payday Loan centers doing payroll loans for $50 per check, Jackson Hewitt Income Tax loans for gobs of money and $4 hits on every ATM withdrawl of $20.
This, I believe, was Dan’s point and I agree with him. I am a rock-ribbed conservative, but I see these financial companies as the modern day robber barons. Couple that with the financial meltdown of these same institutions over the past several months and it makes me even angrier. There is no way out of this trap.
Of these Wall Street and banking types, I say let them all die. No bailout for them. They don’t deserve the usurous profits that they are sucking out of the card-carrying public. Turn about is fair play.
I’ve had a similar experience and yes, with a cell phone company (of course). But consider, if you will, those — including myself, for much of my life — who truly were or are poor. Even the most honest and intelligent cannot find a way to survive in systems such as “welfare,” “workforce services,” etc. Now with a doctorate and a reasonable income (for the past 10 years), I work with those who are often in impoverished circumstances. Here is a typical example: a woman has chronic health problems (both physical and psychological) but has been denied social security disability benefits. She can barely hold a part-time job, so can’t make enough to pay the rent, which continues to rise. She applied for “welfare” (aka, general assistance) while also seeking services to gain job training, so she could raise her income and become self-sufficient. Guess what? The rules are: A person can’t get “welfare” benefits (to the whopping tune of $236 / month) AND receive job training. It’s one or the other. Like, huh? Since she was about to become homeless, she chose the monetary assistance, and had to surrender the training. And there she is, stuck in a loop with no way out. Been there, done that. I became the Queen of Creative Accounting, in my own history, by paying credit cards with other credit cards, taking out loans with deferment loopholes, and fun stuff like that. But there were days when I just cried every time I got another notice in the mail, that some payment or fee was raised, due, accelerated, or whatever. Yikes. I often wonder how our society can so lack in compassion for its most vulnerable members.
My friend had a similarly bad experience.
She is a single mom schoolteacher with 3 kids under 5. She got behind on her car payments for a couple of months. She was probably $1000 behind. Her finance company ended up sending her to collections for the remaining value of the loan ($9000) AND repossessed the car.
I told her that repossessing the car and hitting her with that $9000 charge sounded illegal to me, but she just accepted it.. it’s not like she knew or could afford a lawyer.
So, now here she is… 3 years later, still with this unpaid $9000 debt on her credit report.
Admittedly, she got ample warning about the consequences, but does the punishment fit? Even if the punishment does not fit, most people are not given the tools to fight.
Rule 1 of banking; never lend to anyone who needs it. The CRA told them otherwise of course, which is part of the mess we are in.
Yes, money is the most expensive thing you can buy – if you have to buy it.