Wealth Stripping: Why It Costs So Much to Be Poor
Within the public policy arena, the contemporary use of the term wealth stripping has generally referred to financial products and services like payday lenders, rent-to-own stores, and the like that exploit the lack of financial sophistication among economically disadvantaged populations. Awareness of the problem among policy-makers and advocates arguably originated with Michael Sherraden’s 1991 book, Assets and the Poor. Sherraden’s landmark work spawned a virtual avalanche of research, proposals, and innovative initiatives on asset building. Out of that body of research grew significant attention toward wealth stripping. John Caskey’s seminal 1996 book, Fringe Banking: Check-Cashing Outlets, Pawnshops, and the Poor, was the subject’s foundational text, highlighting how the high cost of alternative or fringe lenders strips away the financial resources of the poor. Many other scholars have since followed with different perspectives on both saving opportunities and the wealth-stripping challenges confronting the poor.
Even today, writings on the subject of wealth stripping tend to focus principally on the high cost of alternative financial services. But the Great Recession—driven by the foreclosures that hit minority communities especially hard—demands a broader examination of the issue to include ways in which the failure to impose or enforce consumer protection and anti-discrimination laws can lead to even greater harms. This broader perspective is essential if we are to understand and address the unique hurdles faced by low- and moderate-income households and people of color, who are disproportionately affected by these problems.
Wealth stripping has only increased during the economic crisis. Since the onset of the Great Recession, Americans have lost $7 trillion in equity in their homes. The Federal Reserve estimates the median American family has lost nearly two decades of wealth, or almost 40 percent of their assets. In a separate report, the Pew Research Center estimates that Latinos, Asians, and African Americans have experienced wealth losses of 66 percent, 54 percent, and 53 percent respectively, compared to 13 percent for whites. These losses are largely due to home foreclosures and lost equity