Quite counter-intuitively, poverty in absolute terms, when one lacks the means for essential life sustenance, is in worldwide retreat. Since the 1990s one billion humans were lifted out of poverty, defined by the UN as living on less than two US dollars per day. Three-quarters of this astounding poverty reduction was achieved by the People’s Republic of China alone, legitimising the iron-fisted regime.

This contrasts starkly with the experience of citizens in the rich world who find it increasingly difficult to make ends meet, to cope with stagnant salaries and the provocative increase in inequality. It grates to see the very few getting richer when we are stuck with a breakdown on the hard shoulder of life. Ill feelings on the side of those left out are feeding nationalisms, populism and violent upheavals on all continents, from food revolutions to housing protests.

As always, Pied Pipers blame religion, ethnicity and the skin colour of others for the woes of the cheated part of our socie­ties. World trade and market capitalism, which had, in fact, facilitated poverty reduction and economic growth in the first place, are increasingly vilified.

Since the end of the 19th century, political parties of all stripes, based on universal suffrage, have recognised the need for socie­tal solidarity as a moral imperative but also as a means for the well-off to enjoy their wealth and the integrity of their pro­perty in peace. Progressive taxation was introduced to make sure that those who can afford it contribute a larger share to the functioning of the State. Subsidy payments were made from collected taxes to those who were suffering from poorly paid employment. Periods of unemployment were financed and health services and education made free for all.

This did not end the privilege of birth and heritage but contributed to an ever-growing middle class enjoying improved social mobility. Fairness was achieved by strengthening equality before the law, clamping down on tax avoidance and weeding out corruption, nepotism and clientelism.

Alas, desperate budget-saving measures after the Great Recession (2008), snappily called ‘austerity’ in many rich countries, have rolled back many of these inequality-alleviating policies and actively contributed to social injustice. Social care and benefits were ‘means tested’, which was often a euphemism for less money camouflaged by new definitions of need.

At the same time, systems of employment began to change. While employment figures looked increasingly healthy, many of those employed were hired on the pretence of self-employment, denying workers many of organised labour’s century-old achievements like paid holidays, sick leave, maximum working hours and overtime payment. Many were hired on zero-hours-contracts, expecting work on demand without paying for the obligatory stand-by.

Poverty in our climes is perhaps not felt as numbing hunger but as the torture of the increasing distance between one’s own, insufficient income and the comfort of others. What the comfy part of society does not realise is the disproportionate cost of being poor. This includes not only poorer health and a shorter life expectancy, but also the inability of social advancement and of economic improvement. Furthermore, it is apparent in unequal access to democracy, which is increasingly influenced by big business and its vast means to successfully lobby for or donate towards their singular interests. The cost of poverty is financial: the poor have to pay more.

Warren Buffett, the world’s most successful stock-market investor, has repeatedly voiced his concern about a tax system which makes him pay less than his own secretary. We also know that value added taxes hit proportionally harder those who do not earn enough to save and have to spend all their earnings on living expenses. Yet we rarely spend a thought on all the hard cash extracted from the poor.

Poor people have to insure against events that can financially pull the carpet from under their feet, while wealthy people can afford the luxury to stay uninsured

Poor people have to insure against events that can financially pull the carpet from under their feet, while wealthy people can afford the luxury to stay uninsured. This has spawned an industry of almost useless insurance policies, priced vastly higher than the probability of an insurance event happening, like payment protection insurance, travel cancellation insurance, motor own damage insurance and breakdown insurance, to name but a few.

The biggest insurance risk, the risk of pension poverty, has meanwhile been handed back to those who can least afford it. Pensions are not defined by what one expects to be a sufficient income on retirement but by what one has been told to contribute minus investment losses inflicted by the market. Desperate attempts to increase savings are punished with zero interest rates.

Poor people are compelled to buy un­healthy food, because it is cheaper: sugary drinks, fatty snacks and unsavoury meals all have less nutritional value per penny spent. The result is poor health, which painfully lowers employment possibilities and hence income.

With hardly any money to spare, the poor will shop at deep discount stores, those shops that sell food not by weight but in portions, and household and consumer goods for seemingly affordable ‘one euro only’ prices. When weight and measurement of such purchases are taken into account, they are perhaps affordable, but without exception more expensive per unit.

Poor people trapped in the rat race of survival will smoke more too – an expensive, ill-affordable escapism that is increasingly socially exclusive and detrimental to advances in the job market.

Insufficient income nurtures desperate hopes. People living on the poverty threshold tend to gamble beyond their means. They are easy game for tricksters and online scams which cost them dearly. They buy more lottery tickets than the wealthy, in the hope of a break with misery. The chances to win a lottery are multiple times smaller than death through illness or accident. It is money thrown out of the window.

Poor people bridge the gap between necessary expenditure and insufficient means with credit they can ill afford, being easy prey for loan sharks, pawn shops and the credit card business. Credit cards charge interest rates on par with loan sharks: 28 per cent per annum is the average standard.

For people trapped in credit card debt there is hardly a way to ever escape, while wealthy corporations don’t have to pay for their debt at all. The yield of the 2022 MasterCard euro bond hovers close to zero. For the sake of clarity I should mention that the extortionate interest charged on credit card debt is not going to credit card companies but to the banks that issue the cards. The card companies’ income is based on user and merchant fees.

Where does this leave us retail investors? Should we invest in pound stores like Dollar General or Dollar Tree, with their share prices having increased sevenfold in the last 10 years? Should we invest in gambling companies like 888, Paddy Power, Betfair or William Hill, or less controversially, put our money into card companies?

The share prices of the world’s largest payment facilitators ‒ MasterCard and Visa Inc ‒ have done very well since they were transformed from a joint project of 25,000 banks into public companies enabling payments between merchants and customers for a fee. They don’t issue the plastic and they don’t run the credit business. This darker side remained with financial institutions.

Both Visa and MasterCard are $300 billion corporations with a profit margin of almost 50 per cent. They show healthy growth despite Chinese competition and they try to stay on top of payment technology. They are very expensive though, both of them. With a price-to-earnings ratio of 33 and 37 respectively, there is little upside-hope in a nervous market, yet a sizable litigation risk for overcharging.

Considering all the above I’d advise those of us who can afford to spend a few quid on a cinema ticket to watch Sorry We Missed You by Ken Loach. The expense will not boost your investment knowledge but open your eyes to what it costs to be poor.

Andreas Weitzer is an independent journalist based in Malta. He reports on the economy, politics and finance. The purpose of his column is to broaden readers’ general financial know­ledge and it should not be interpreted as presenting investment advice or advice on the buying and selling of financial products.

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