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Editors’ note: 

For church leaders to be more effective in seeking the “welfare of the city” (Jer. 29:7), we should know what economic concepts mean, how they should be applied, and how they affect the church. The purpose of the Economics for Church Leaders series is not to present a theology of economics, but rather to provide a basic level of understanding that will help church leaders think more clearly about how to apply their faith commitments to economics and public policy.

In the critically acclaimed though rarely seen movie Killer of Sheep (1978) there’s a scene that highlights why being poor can be so expensive.

The film is about an African American family living in the Watts section of Los Angeles in the 1970s. Attempting to escape the drudgery of everyday life, the family decides to join some friends one Saturday in taking a day trip out to the country. Before they can even get out of Watts, though, the car has a flat tire. They don’t have a spare, so they have to ride back home on the rim.

Not much is made of the event by the characters in the movie, but anyone who has been poor knows exactly what it means for the family’s future. If they couldn’t pay for a small repair like a flat tire, they certainly won’t be able to pay for the damage that comes from a bent rim. The car will either be abandoned or sold for scrap. Either way, the result will be the same: they no longer have a car. Life for them will become a little bit harder, slightly more miserable.

That’s one of the worst things about being poor: almost everything becomes a luxury good.

If you’re higher on the economic ladder, you have things fixed, whether tires or teeth, before the repairs become even worse and more costly. But when you’re poor, even small repairs are more than you can afford. And they lead to catastrophic consequences. It’s not that you’re ignoring a situation or ignorant about the inevitable disastrous outcome. You know it’s a problem and that it’ll be an even bigger problem in the future. There’s just not much you can do about it.

When you’re poor, even small repairs are more than you can afford. And they lead to catastrophic consequences. It’s not that you’re ignoring a situation. There’s just not much you can do about it.

Consumption Smoothing

As I mentioned in a recent article on consumption smoothing, for most Americans, from the lower-middle-class to the one-percenters, the consumption smoothing life-cycle model (the balancing of spending and saving over a period of time to maintain the highest possible standard of living) represents the general arc of their economic life, from first job to retirement.

The same is not true for the working poor. Rather than one broad, life-spanning pattern, this cycle occurs repeatedly throughout their lives. The pattern repeats anywhere from once a week to several times a year. But it repeats frequently and has a profound effect on how the working poor think about income, savings, and consumption. This is the key difference between the economic classes.

Consider the monthly expenditures for the average middle-class family. Aside from the basic necessities, such as food and utilities, you’ll find that many of the payments are related to consumption smoothing: mortgage, car payment, student loan repayment, credit-card bills, insurance (car, health), contribution to savings, contribution to 401K, college fund, etc. Most of the income the middle-class earns each month is used to repay what we consumed in the past or to save so that we may consume more in the future.

For the middle class, the ability to apply consumption smoothing makes life easier, less risky, and more enjoyable. For the working poor, the inability to apply consumption smoothing makes life much more difficult. In fact, four of the primary economic problems of the working poor are related to consumption smoothing.

Four Problems of the Working Poor

The first and most obvious problem is that the working poor often do not have enough current income to cover expenses (Type 1). The second, even more significant, is that they are not likely to earn enough money in the future, which limits their ability to use credit (Type 2). The third problem is that for the working poor the timeframe for the “future” is much shorter than it is for the wealthy and the middle class (Type 3). And the fourth problem, as mentioned before, is that being poor is very expensive (Type 4).

Here’s an example of how these four factors affect the working poor. Tom lives in a rural area and relies on his 2008 Dodge Neon to take him to his full-time minimum-wage job. He knows he needs to replace several worn engine parts, but he doesn’t have the money to buy the parts (Type 1). After a few weeks, the car ceases to run at all and the repairs will cost him $500 (the equivalent to a week and a half of pre-tax wages). Because of his low wages and late payments, he has a low credit score, making it impossible to find credit at a reasonable interest rate (Type 2).

Tom decides to seek help from a payday loan service. The finance charge to borrow $100 ranges from $15 to $30 for two-week loans. Let’s say Tom pays the minimum rate. After two weeks, his total repayment will be $650, an APR of 782.14 percent (Type 4). Obviously, since Tom does not have $500 today, he is not going to have $650 in two weeks (Types 2 and 3).

He can’t afford the payday loan, so he can’t fix his car. But if he can’t fix his car he can’t go to work. And if he can’t go to work, he’ll lose his job and be unable to support his family or pay his bills. What should Tom do?

Our first reaction may be to wonder why he’s in this situation. We might even have reason to chastise Tom for the decisions that led to such dire straits. Maybe if he had studied harder in school he’d have a better job. Or maybe if he hadn’t been late paying his electric bill he’d have a credit card. Most likely both a combination of poor individual choices and systemic constraints outside of his control brought on his crisis.

But if we set aside our critique of Tom and look only at how we would help him resolve the situation, we begin to understand and appreciate the complexity and difficulty of finding a solution. Once someone is trapped in these problems, it’s exceedingly difficult to find a way out.

How Churches Can Help

Much of the discussion about poverty in our country tends to focus on the macro level. While it’s important to consider broad, general effects like unemployment or welfare policy, it’s just as essential to consider what we can do on a personal level. Christians, both individuals and churches, can do much for the poor if we take the time to find answers to the question of how we can make life less expensive for the poor.

Christians can do much for the poor if we take the time to find answers to how we can make life less expensive for the poor.

An example of how churches could help the working poor is to coordinate needs-based loans. Church members who have sufficient savings could donate to a temporary benevolence fund from which other members could borrow. As the money is repaid, the funds are returned to the original lenders so they can replenish their previous savings. (Ideally, these loans should be interest-free to avoid becoming usurious. They might also be convertible to grants for those unable to pay back what is owed.)

If more churches in America were willing to offer such programs, there would be much less need for poor Christians to go bankrupt, turn to predatory lenders, or become mired in debt just to pay their bills.

Caring for those in need (Eph. 4:28) is not just about food banks and handouts. Sometimes the best way to help is to provide a financial bridge during desperate times that helps cover short-term situations. Developing a plan to enable consumption smoothing is a relatively easy way churches can help make life less expensive for the working poor.