There are several ways to save money on, say, a roll of toilet paper. You can reach for the cheaper version: the store brand, or the singly-ply TP, or the stuff that feels like packing paper. Or you can buy in bulk, saving on each roll per unit. Or you can stock up when the deal is good, like when the corner store offers two packs for the price of one.
The poor, who need all of these strategies, are much less likely to use the last two.
They can't afford to, according to some revealing research by University of Michigan professor Yesim Orhun and Ph.D. student Mike Palazzolo (hat tip to Michigan Public Radio).
Using panel data on more than 100,000 American households over seven years, they tracked purchases of toilet paper, which has the great benefit of being non-perishable and steadily consumed (it's hard to go without, but we also don't use more just because we happen to have more in the house). That's nearly 3 million toilet paper purchases.
When Orhun and Palazzolo compared households with similar consumption rates shopping at comparable stores -- and controlling for two-ply TP -- they found that the poor were less likely than wealthier households to buy bigger packages, or to time their purchases to take advantage of sales. By failing to do so, they paid about 5.9 percent more per sheet of toilet paper -- a little less than what they saved by buying cheaper brands in the first place (8.8 percent).
Perhaps this sounds like a subtle discovery about minor household goods. But it supports a larger point about poverty: It's expensive to be poor. Or, to state the same from another angle: Having more money gives people the luxury of paying less for things.
In the case of toilet paper, or any number of other storable goods like canned tomatoes, rice or paper towels, shoppers have to pay more up front to reap savings over time. And the poor often can't afford to do that -- to pay $24 for a 30-pack instead of $5 for a four-pack. Then, because they can't stock up, they can't afford to wait until the next sale comes around. When the toilet paper runs out, they have to run to the store for another small quantity of it -- whatever it costs in that moment. Because they can't use one money-saving strategy, they can't use the other either.
You can create a poverty trap even around the toilet paper that we study.
SHARE THIS QUOTE:
"You can create a poverty trap even around the toilet paper that we study," Orhun says. Middle-class consumers behave quite differently, she adds. "They buy when the price is right and wait when the price isn't. But poor people don't have that luxury."
These results, she says, should make us reconsider how poverty can prevent people from making smart financial decisions. If we simply drop a new supermarket into a food desert, for instance, that doesn't guarantee that poor people who live right next to it will be able to take advantage of all its savings. One possible solution is that retailers could consider pushing their deals to the beginning of the month, when they have more cash on hand from paychecks or benefits. But they'd only be incentivized to do that -- to help their customers pay less per unit -- if they have to compete for these shoppers.