The Final Call

The high cost of being poor

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Residents of Metropolitan Gardens, Alabama�s largest public housing project, can see shiny downtown bank towers from the windows of 55 dilapidated, red-brick apartment buildings, pictured here on Jan. 12, 2001 in Birmingham, Ala. The 910 units in the project - some of which are 60 years old -will be replaced with about 600 townhouses for rent and purchase. Only 260 or so homes will be offered as low-cost public housing, meaning many current residents must either move up or move on. The $35 million program is part of HOPE VI, a U.S. Housing and Urban Development plan to replace the nation�s worst housing projects with new, mixed-income residences. Photo: AP/World Wide Photos

When the childcare professional and retired auto mechanic went house-hunting with a real estate broker, he took one look at their poor credit scores and flatly predicted they would never be approved for a loan. He even suggested the Johnsons find someone else to apply for the loan on their behalf.

It also didn’t help when homeowner friends often complained to the Johnsons of backbreaking interest rates on their mortgages.

So when the Johnsons finally moved into their new Suitland, Md. home just outside of Washington, D.C. in May, Angela Johnson was downright giddy when they ran into that broker again.

“I saw him. And you know I was so proud to tell him, ‘We bought a house and let me tell you what the interest rate is,’” she said.

She has a reason to beam with pride. The Johnsons beat the odds that are statistically stacked against low-income Blacks.

The Washington-based Brookings Institution’s recent report, “From Poverty, Opportunity,” shows that on average, lower income homeowners ($30,000 or less) pay interest rates as high as nearly seven percent, meanwhile people with incomes of more than $120,000 paid a rate of 5.5 percent.

The Johnsons were able to secure a rate of four percent.

So how did they do it? And why aren’t more low-income folks rushing to do the same thing?

Financial empowerment experts and the Brookings Institution’s study say the number one problem is the lack of information.

For low income Blacks, there are even deeper issues, said John Hope Bryant, chairman and founder of Operation Hope, a Los Angeles-based financial empowerment organization.

“We really don’t have a history of economic capitalism and free enterprise. And that’s hurt us. We’re experts generally speaking in civil rights, we’re experts in issues of social justice, because those are the things that most impacted our lives from the history we have in this country,” offered Mr. Bryant, who has a number of partnerships with major financial institutions across the country.

“Even our broad church network was used in the social justice perspective around issues of political empowerment. That was a good strategy for the time, unfortunately it didn’t really prepare us for a world and a country that is a democracy rooted in capitalism,” he opined.

Because of that, Mr. Bryant launched a new movement the Silver Rights Movement, when he started Operation Hope in 1992. His goal was to help lower income people take back their fiscal lives and has developed several programs including credit counseling, job assistance and home ownership classes that help people like the Johnsons.

Banking on Our Future is another nationally recognized financial literacy program from Operation Hope. Geared toward students age 9-18, the program has reached more than 700 schools in the U.S. serving thousands of students, Mr. Bryant noted.

A bad deal

Operation Hope currently has seven Hope Centers in the Los Angeles, Oakland and Washington, D.C. areas.

The D.C. office is exactly where 43-year-old Angela Johnson went to find out that, despite what she was told by others, she could finally purchase her own home. The Johnsons took a series of classes and the professionals at the center took them from confusion to their closing.

“It’s just nice to know that somebody has your back. Somebody has your back with information and knowledge,” Ms. Johnson shared.

But home buying isn’t the only area where lower-income people are getting bad deals.

Lower-income homeowners “can pay as much as $300 more for home insurance than those in higher income neighborhoods,” the report said.

When a lower-income person walks into a car dealership, the report showed, that person will pay between $50 and $500 more in car prices and an extra two percentage points on an auto loan.

“Together, these higher prices can add up to over $1,000 every year,” said the report.

What you pay all hinges on credit, says Tracy Bailey, assistant manager of the Hope Center in D.C.

“People don’t understand the power of good credit and they don’t check it as often as they should. They really don’t understand that they don’t need a whole lot of money for purchasing power if they have good credit. When we inform them of that fact, it’s like a light comes on,” she said.

That’s why the credit counselors at Operation Hope teach people how to read their credit report at least twice a year and encourage them to get rid of the fear of contacting their debtors and disputing incorrect information.

“We have to stop being ashamed of the fact that we may have ‘tore up’ credit. The fact that we may not have any money in the bank,” Mr. Bryant stressed. “We laugh and we encourage you to laugh. We say this credit report looks like a bus accident. Now it’s out. It’s not that bad, the world didn’t explode. We’re proud of you that you actually stepped forward.”

Check-cashing, payday loans and rent-to-own furniture businesses are also major contributors draining the pockets of low-income people, says the report.

Most customers of check-cashing businesses earn annual incomes of less than $30,000. To cash a $500 check, the report said, customers would pay an additional $5 to $50 in the 12 metro areas they selected for the study.

The report pointed out that in Wisconsin, “it is estimated that a $200 television might cost as much as $700 at one of the rent-to-own businesses in the state after interest.”

Mr. Bryant said when people use these services, they ask the wrong questions.

“You don’t buy almost anything based on what the payment is, but that’s how we tend to ask the question. When we buy a house, a 30-year mortgage, we ask what’s the payment?

“It can be an interest-only loan, which means you never pay any of the principal off. It could be a negative amortization loan, meaning every time you make a payment you can owe more money next month. We don’t ask the question of what’s the interest and what’s the terms.

“Rent-to-own furniture. We don’t ask how many times in a year, if I rent this television set and I pay you every week, how many times in a year have I bought this television? You probably have bought that television three or four times,” he added.

Discipline and dollars

Kehinde Powell, the manager of the D.C. Hope Center, says she sees people struggling every day because of what she calls “massive consumerism” and bad priorities. She said the number one thing low-income Black people spend their money on is eating out and clothing. One of her clients spent at least $600 a month for drinks and food at nightclubs.

“It’s a very negative emotional relationship (with money). If we don’t have it, we’re very depressed. If we do have it, we’re very happy,” she opined. We don’t look at it as we should—like a vehicle to obtain wealth; what it means to manage it.”

Mr. Bryant agrees that there is a serious self-esteem problem coupled with the fact that culturally, Black people don’t talk about their finances.

“There is no dialogue in our homes around money. We like to spend it, but we don’t want to talk about it and we don’t understand it,” he said. “Part of this comes from this unfortunate tradition in the Black church that suggests money is the root of all evil. Money is not the root of all evil; the love of money is the root of all evil. Money can set you free,” he continued.

Experts and financial counselors like Troy Robinson, first vice president of the New York chapter of the National Association of Black Accountants, said that discipline and budgeting is the key; and people, no matter the income level, can live better.

“You really have to examine what you’re doing to see if there’s anything in there you can cut. In order to build wealth, you need funds and you need excess funds above and beyond your normal and necessary expense,” Mr. Robinson explained. “Your cable might have to go; the cell phone might have to go. You have to recognize your strengths and weaknesses.”

He suggests people record their purchases and expenses on a monthly basis to see exactly where the money is going.

“If you exercise proper judgment with your budget, other areas will improve. Your credit will improve because you will be paying off your bills. You’re not going to be charging more than you bring in, so it’s going to trickle down.”

What we don’t know

Mr. Bryant agrees that discipline and education is what it takes for the post-civil rights generation to get ahead in a society that is becoming more and more focused on what’s green instead of what’s Black or White.

“We can’t keep being mad at the White man and talking about this is racism when the fact is nobody forced you to go to the rent-to-own store, the White man didn’t force you to go into his check-cashing operation and pimp yourself when you could have gone to the bank and opened a savings account. You could have disciplined yourself and saved $100,” he insisted.

Mr. Bryant also noted that people can start with cashing in the Earned Income Tax Credit (EITC).

“Last year, we poor folks, mostly Black and Brown, gave the federal government back $9 billion that is owed to us. The only reason we didn’t get it is because we didn’t know to ask for it. One out of four Americans didn’t even ask for the EITC credit.”

Mr. Bryant said people who make less than $40,000 a year and have children are eligible. For example, he said someone who makes $35,000 a year with two children could be eligible for $4,000 a year and this credit is retroactive. All they have to do is fill out one page of paperwork, he said.

“We’re not dumb and we’re not stupid,” he maintained. “We’re very savvy you have to be very smart to survive poor in America. ‘What we don’t know that we don’t know’ is what’s killing us.”