The causes and cycle of poverty.

Updated: 2/19/2017

I grew up in poverty, we were homeless and on welfare at one point, but I sacrificed and got myself out of poverty. The impoverished were my friends and neighbors. I still live with the working poor. I don't earn that much, but I do a lot with my money, I'm pretty frugal. But it's not enough, I can't fund my IRA to a decent level and I'm unable to buy a bit bigger house.

Poverty has many causes, not just one or two causes. This essay is an attempt to cover the major causes of poverty, and why it continues in the US.

Poor people need a certain amount of money to buy basic things like food, medical care, gasoline, rent, etc, so many of them live paycheck to paycheck. But it's not just about what you earn, it's about what you spend.

Poor economic policy

Poor economic policy at the national and state level is one facet why there is poverty. The Great Recession of 2008-2009 saw many major financial institutions "circling the drain" (near failure), but the US gov't bailed them out. This sends the message the these companies can make foolish decisions with no personal responsibility at all. When these companies downsize, many people lose their jobs. And when the economy goes bad, many other companies also lay off people.

Welfare programs don't promote change in behavior

US welfare programs give people cash, a discount on their rent, or coupons for food, but these programs do not encourage any real change in self-destructive behavior which I will cover below. I support jobs programs, where a person can learn a lifelong skill instead of a cash welfare program. (I was part of a jobs program as a teen and was grateful for the job.)

Poor money management

The poor have to take some responsibility for their situation. The poor have some of the worst habits which keeps them in poverty. If you actually live with the poor, like I do, you will see most have plenty of these luxuries: smart phones, high speed internet, cable TV, satellite TV, motorcycle, or a new truck or boat. My neighbor has 2 extra vehicles and 2 boats in his back yard alone, yet his roof is falling apart. Their poor money management keeps them down.

Addiction

As you go down the income ladder you will see more and more people who smoke and drink excessively. I'm all for having an occasional drink, but smoking is an addiction that is very expensive up front (the cost of cigarettes) and in the back end (with higher costs for medical expenses.)

Medical bills

Many Americans have poor money management skills, and this includes having no emergency fund. An emergency fund helps people have choices in an emergency. So if a medical problem happens, in the US the patient's part can be thousands of dollars or more. They lack the willpower to make sacrifices to become financially stable. In fact, in one case the city of Madison, WI, gave a free financial class to the poor. In 6 months they called the same people and asked if they were still using those skills. 95% were no longer using those skills. That's their choice.

Untreated mental illness

There are many smart people out there among the poor, I saw them myself. But quite a few of them have untreated mental disorders. Even with Obamacare there are still 35 million Americans without health insurance, and these people cannot afford the meds that they need. If we took some of the money from welfare programs and used that JUST to buy meds for these people, they would have a chance at a job and the pride to take care of themselves.

Poor choices

It's not uncommon to find poor families with a new truck, who are on welfare. This is a poor choice, they bought too much truck than they can really afford. This problem applies to housing as well. Many people who bought too much house lost their house in the Great Recession, when one of them lost their job. If you lose your job and you can't afford the house, you are taking too much risk. Banks will approve you for a MUCH larger mortgage than is practical, they do not have your financial security in their best interest.

Too many babies

In the US mothers get more cash payments for every child they have. This does not mean they have more cash to make an easier life, though some people perceive welfare this way. This system encourages mothers to bring more children into poverty, and continue the cycle. This system also does not involve personal responsibility at all. 70% of black babies are born to unwed mothers.

Lack of education

A US college education is ridiculously expensive these days, I'm not disputing that. And hiring managers look more at the degree, than at the person's experience and results. This causes an unequal favoritism with people who have a college degree but may not have worked a day in their life after graduation college.

Lack of connections

Poor people, even if they have the skills, experience, and the degree, don't have as many business connections as the rest of the population. They have more trouble getting that inside information to get that job that hasn't been advertised yet. This hurts them when it comes to finding a job.

Political correctness

Political Correctness means one can't talk about all facets of a problem because it doesn't fit the narrative that is forced on people. Political Correctness means people don't talk about things that hurt their feelings. You can't solve a problem unless you talk about it. So the PC movement only serves to keep poor people down. Successful people address all facets of a problem, even if it points out that they made a wrong choice. Successful people are able to admit they made a bad choice, and fix it in the future, and learn from their mistake.

The PC movement also serves to make people into knee-jerk reactionaries. This is a very effective way to alienate people so they don't come together as a community and improve their situation. Extremists don't work well with others.

Rent to own

Rent to own furniture is one of the most expensive ways to acquire furniture, but it's still very popular anyway, because it allows people with no extra cash to "rent" furniture for their house.

Payday loans

Payday loans are where people get an advance on their paycheck and pay super high interest rates on it. Both the initial fees and the interest rates are not regulated by the US. People who do this have already spent more than they earn so this is a never ending cycle of debt. Good for the business, bad for those people.

Raising bad children

Poor people are sometimes ignorant of parenting techniques that produce responsible children, so the kids simply continue the cycle of poverty. See this paper: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=194928. Sep 1999. NBER Working Paper 7343.

Lack of skills

Poor people lack skills of a changing US economy, which is shifting to technical skills and service, and they don't have the money to get training. Because of poor money management skills. See above.

Lack of opportunity

Most of this hinges on their lack of connections, and lack of skills. They will have few opportunities if their skills are not needed or their skills are sub-par.

Lack of personal responsibility

Many of the above issues are related to a lack of personal responsibility. A person can change their luck by working hard, and working smart, but none of that matters if they keep blaming others for their own poor choices.

And so you have the country-level poor economic policy and the decisions of the poor themselves which keeps them down. And the cycle continues. The cycle continues because no one talks about ALL facets of the problem. The gov't policy is one part of the problem. Lack of responsibility is another part, and bad choices by individuals is another part. Address ALL the facets and you will greatly reduce poverty.