In an effort to find out as much as possible, I went inside nearly every store right up the street from my house. I was actually quite impressed with the types of stores we have that I didn't even realize were there. There are no franchise-type stores, of course. But there is a shoe bazaar, a flower shop, a bridal shop, a cell phone store, a Spanish Christian bookstore, and several restaurants.
However, the other side of the street was much different. There was a pawn shop, a Rent-a-Center, and Justice Finance (a loan place) all right in a row.
I've heard about the exorbitant amounts it costs to buy things at Rent-a-Center. But I also know that many of my friends purchase from there because $9.99/month is much more affordable than paying one lump sum all at once. I wanted to know just how outrageous the prices were, though. I was shocked and appalled! Let me give you a couple of examples:
A Pentium 4 Dell computer with a flat screen costs $39.99/week for 104 weeks for a grand total of...(are you ready for this??)...$4158.96!!! Yes, you heard me right. However, if they were to pay cash for it, it would "only" cost them $2079.48. If they were to buy a similar computer at Best Buy, it would cost around $1050!
There are more, but let me move to the next business, "Justice" Finance--a truly ironic name for a business that gouges the community like it does. Justice Finance offers loans from $100-$1000. For a $700 loan, she informed me that I would need to pay $92.54/month for 11 months, resulting in a $307.94 finance rate, which calculates to 44% interest!!! However, you could get a much smaller $200 loan and make only 6 payments of $43 each month. Then you would "only" have a 29% interest rate. Not even credit cards are getting that much interest!
A DVD player with 5 CD changer costs a mere $9.99/week for 49 weeks for a grand total of $489.51. However, paying cash would get them off "easy" for only $244.75. (oh, by the way, the one I was pricing had been previously rented, so that was the price for a used machine!). The same new machine at Best Buy costs only $129.99.
So why do people borrow and spend money like that?? Since I've never been in that situation, I can't answer for sure. But I'm guessing it's less about being irresponsible (as I've heard some suggest), and more about figuring out how to have wants and needs for a manageable price each month and a convenient way to get it. Think about it. If you're a single mom making a little over minimum wage (which would amount to less than $800-$900/month with taxes taken out), You've got to figure out a way to pay the rent, electric, water, gas, phone, and food just to provide the basics. You may have a few dollars left over afterward. If so, you could either choose to save up $20 or so each week until you could afford to buy something (which would take forever) or you could get it in your home immediately and begin enjoying it now by purchasing from Rent-a-Center. If you ever can't pay it all off, they will be glad to take it back. If it does get taken back, at least you were able to enjoy it in the meantime. Oh, and Rent-a-Center is in nearly every poor neighborhood so it's accessible (how many Best Buys do you see in poor neighborhoods??). AND Rent-a-Center delivers so there's never any worries about needing transportation to get it home! "Justice" Finance works the same way. It makes everything easy and convenient.
It always amazes me that the people with the least amount of money are the ones who end up being charged the most. Don't you think poor people might be able to be more responsible and just might be able to break even every once in a while if businesses like these worked with people instead of taking advantage of them? I can't help but believe ethical business practices in poor communities might be beneficial to the entire community. Go figure.