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Poor are #1 prey for financial predators

It’s fairly obvious that the less you have of something you want, the more you want it; whilst the more you have, the less you need it.

It’s not true of everything I guess as, for example, I don’t have a great deal of tomatoes and don’t want more of them because I don’t like them, but generally it’s true for the law of diminishing returns.

The law of diminishing returns  is an age-old economic theory that says you get the greatest satisfaction from satisfying a need the first time.   The second, third, fourth and more give you less and less satisfaction.

That’s why the first is always the best, even though we save the best till last.

The only reason I’m going on about this is because I was thinking about poverty.

The less cash you have, the more you need it; the more you have, the less you need it.

That certainly seems to be true as the ultrawealthy don’t need more capital.  They want it, simply because it makes them feel better; but they don’t need it.

This is the reason why so many rich people turn into philanthropists as, once you’re sitting on a few billion, it’s more than enough to provide a comfortable retirement.  If you’re worthy, you can then dedicate the rest to helping the world.

It’s also the reason why poor people are such easy prey.  If you have no money, then it’s one of the things you need more than anything else.

Money gives you the basic essentials of life: food, shelter and, if you have enough, it gives you the better things in life such as entertainment and relaxation.

This is why there is such uproar about payday loan firms.  Are they predators preying on the weak and needy, or good agents of release for those who are desperate and need help?

This is a debate raging right now about the largest of such firms, Wonga.

Wonga sponsor Blackpool Football Club  (just relegated, shame) and sponsored London’s New Year’s Eve last year.

London Mayor Boris Johnson was conflicted about this.  In defending the move on London radio station LBC, he said:

“They’re a legitimate outfit and they are licensed to trade in this City and if they want to reduce the cost of travel for people in London then that seems to me to be something that is perfectly acceptable, but what I would say and I would stress this, anybody listening, people should be aware of the extortionate rates of interest that they can charge and people should not enter into irrational and unwise debt obligations.”

Hmmmm … promoting a company that charges “extortionate rates of interest” in their defence is a bit strange.

In response, company founder Errol Damelin says that his critics “are picking on the wrong people. We are the good guys. Yes, we're in a space that is controversial, that is polarising. But it is an important social service. To have social mobility you have to have credit available to people where it’s required and where it's appropriate.”

No easy answers here.

But when people are desperate, they are desperate.

Some people would do anything for a few bucks.

That’s why poor people gamble three times more than better off people, as demonstrated by the latest results from Camelot, the UK operator of the National Lottery.  In this time of austerity, the operator has just posted record sales of £5.8 billion in the year through to March 2011, a 6.8% increase on last year.

Like Pavlov’s conditioning, you can make a desperate person do anything.

You can have baby farms in India or just sell body parts for dollars.  Some even sell their kidneys for iPads.

A desperate person will do anything.

Maybe that’s why banks stay out of the unbanked and underbanked, as it’s a market that can get you into trouble.  Or maybe it’s a reason why banks should get into serving the unbanked and underbanked, as it’s a market that needs regulated assistance.

Either way, this is a debate that’s been going on for a long time, and will rage well into the future.

A song that was inspired by Aloe Blacc being made redundant by Ernst & Young.


Charlie Palloy's “Brother, Can You Spare A Dime?” from 1932 [The Last Great Depression]



About Chris M Skinner

Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, TheFinanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

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