Lending Club Blog

Why do the poor stay poor?

It’s never a good time to be poor—in America, the gap between the rich is not just evident, but growing. The rich are getting richer, and the poor are staying just as poor or getting worse. What’s going on?

For a long time, like a lot of people, I blamed it on the poor people themselves. I just assumed that they didn’t take the time to get educated or that they willingly subjected themselves to high-interest loans. I’ve seen people portray the widening gap as a result of social Darwinism – the poor are only getting poorer because they deserve it.

But that can’t explain it. The poor aren’t stupider or less able than the rich; they have less luck. I researched this and found that in order to break out of poverty, people need a seed: activation capital.

In her great book Nickel & Dimed, Barbara Ehrenerich wrote about how she chastised one of her co-workers at Wal-Mart for living in a motel instead of in a much cheaper apartment. What was her co-worker’s reason? To get an apartment required a down payment, a security deposit, and time to search for a good one—luxuries she didn’t have. If she could have saved up a few hundred bucks, she would have been able to move into a cheap apartment and rapidly save much more. The only problem was that she had no ability to save the few hundred bucks.

Taking loans is one way to get the activation capital. However, the hard part isn’t getting the money—see my previous post on high interest loans – it’s repaying the money. If someone in the above person’s situation takes one of those 100% APR loans, chances are that she won’t ever be able to pay it back. Once in debt, it’s a lot harder to get out.

Investments such as bonds, stocks, or lending your money on Lending Club can help you make sure you always have some money in reserve. In my next post, I’ll talk about how to save for a rainy day or for when you need some activation capital yourself.

Tuesday, August 14th, 2007 at 11:58 am

Comments (0)

  • Archives z

Recent Posts

We went public today!

Ringing the bell this morning at the New York… Read More »
December 11, 2014

New and Improved Statistics Page

We recently redesigned our Loan Statistics page to make… Read More »
November 13, 2014

Lending Club Honored with Economist Innovation Award

This month I was honored… Read More »
October 15, 2014

Finding the right company culture for you

How important is company culture to you? At Lending… Read More »
September 30, 2014

Welcome Vermont Investors!

Today, we’re thrilled to welcome residents of the state… Read More »
September 4, 2014

We filed to go public today

We filed a registration statement with the SEC today… Read More »
August 27, 2014

Our Billion Dollar Quarter

We’re excited to announce  that we’ve facilitated over $5… Read More »
July 8, 2014

Is Lending Club Available in My State?

Is Lending Club available in my state? That is… Read More »
July 7, 2014

5 Things Everyone Should Do Before a First Interview

After spending hours drafting your… Read More »
June 24, 2014

Lending Club Joins Senator Cory Booker to Discuss Improving Access to Capital for Small Businesses

Read More »
June 20, 2014