America’s poor subsidize wealthier consumers in a vicious income inequality cycle
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America’s poor subsidize wealthier consumers in a vicious income inequality cycle

Aaron Klein
Brookings Institution, 2018
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Most explanations of income inequality focus on wages or tax law. But the different ways in which the poor and the rich pay for goods and services conceal a form of wealth redistribution that widens the divide. Affluent consumers use credit cards stuffed with rewards, while those at the other end of the income spectrum pay in cash that might come from payday loans or incur overdraft fees. In this thought-provoking article, researcher Aaron Klein offers insights on how skewed US payment systems bankroll benefits to the wealthy at the expense of the less well-off. getAbstract recommends it to financial professionals and those interested in a level financial playing field.

Summary

Current US payment systems penalize the poor and working class while rewarding the rich. The people who can least afford them bear much of the $14 billion in bank overdraft charges and the $9 billion in payday loan fees collected annually. Banks no longer offer totally free checking accounts. Credit cards marketed to lower income consumers offer fewer rewards and higher costs than those pitched to the wealthy. These inequalities in what people pay to spend their money on day-to-day items go largely unnoticed by society.

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About the Author

Aaron Klein is a fellow in economic studies at the Brookings Institution.

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