The poverty penalty describes the phenomenon that poor people tend to pay more to eat, buy, and borrow than the rich. The term became widely known through a 2005 book by C. K. Prahalad, The Fortune at the Bottom of the Pyramid. [1]
An earlier exploration of this was a 1960s sociology study published as The Poor Pay More which examined the ways in which retail patterns and a lack of consumer options allowed marginal retailers such as door-to-door salesmen, "easy credit" storefronts and the sale of installment credit agreements to extract profits from low-income buyers, with fewer options and less sophisticated consumer habits. [2]
The impact of the poverty penalty phenomenon has been observed across a range of products and services, including energy [3] and insurance. [4]
In the United States, Medicaid is a government program that provides health insurance for adults and children with limited income and resources. The program is partially funded and primarily managed by state governments, which also have wide latitude in determining eligibility and benefits, but the federal government sets baseline standards for state Medicaid programs and provides a significant portion of their funding.
Microfinance is a category of financial services targeting individuals and small businesses who lack access to conventional banking and related services. Microfinance includes microcredit, the provision of small loans to poor clients; savings and checking accounts; microinsurance; and payment systems, among other services. Microfinance services are designed to reach excluded customers, usually poorer population segments, possibly socially marginalized, or geographically more isolated, and to help them become self-sufficient. ID Ghana is an example of a microfinance institution.
A reverse mortgage is a mortgage loan, usually secured by a residential property, that enables the borrower to access the unencumbered value of the property. The loans are typically promoted to older homeowners and typically do not require monthly mortgage payments. Borrowers are still responsible for property taxes or homeowner's insurance. Reverse mortgages allow older people to immediately access the home equity they have built up in their homes, and defer payment of the loan until they die, sell, or move out of the home. Because there are no required mortgage payments on a reverse mortgage, the interest is added to the loan balance each month. The rising loan balance can eventually grow to exceed the value of the home, particularly in times of declining home values or if the borrower continues to live in the home for many years. However, the borrower is generally not required to repay any additional loan balance in excess of the value of the home.
A health savings account (HSA) is a tax-advantaged medical savings account available to taxpayers in the United States who are enrolled in a high-deductible health plan (HDHP). The funds contributed to an account are not subject to federal income tax at the time of deposit. Unlike a flexible spending account (FSA), HSA funds roll over and accumulate year to year if they are not spent. HSAs are owned by the individual, which differentiates them from company-owned Health Reimbursement Arrangements (HRA) that are an alternate tax-deductible source of funds paired with either high-deductible health plans or standard health plans.
Universal life insurance is a type of cash value life insurance, sold primarily in the United States. Under the terms of the policy, the excess of premium payments above the current cost of insurance is credited to the cash value of the policy, which is credited each month with interest. The policy is debited each month by a cost of insurance (COI) charge as well as any other policy charges and fees drawn from the cash value, even if no premium payment is made that month. Interest credited to the account is determined by the insurer but has a contractual minimum rate. When an earnings rate is pegged to a financial index such as a stock, bond or other interest rate index, the policy is an "Indexed universal life" contract. Such policies offer the advantage of guaranteed level premiums throughout the insured's lifetime at a substantially lower premium cost than an equivalent whole life policy at first. The cost of insurance always increases, as is found on the cost index table. That not only allows for easy comparison of costs between carriers but also works well in irrevocable life insurance trusts (ILITs) since cash is of no consequence.
Prepaid refers to services paid for in advance. Examples include postage stamps, attorneys, tolls, public transit cards like the Greater London Oyster card, pay as you go cell phones, and stored-value cards such as gift cards and preloaded credit cards.
Coimbatore Krishnarao Prahalad was an Indian-American entrepreneur and author. He was the Paul and Ruth McCracken Distinguished University Professor of Corporate Strategy at the University of Michigan Stephen M. Ross School of Business.
Poverty reduction, poverty relief, or poverty alleviation is a set of measures, both economic and humanitarian, that are intended to permanently lift people out of poverty.
The bottom of the pyramid, bottom of the wealth pyramid, bottom of the income pyramid or the base of the pyramid is the largest, but poorest socio-economic group. In global terms, this is the 2.7 billion people who live on less than $2.50 a day.
Payment protection insurance (PPI), also known as credit insurance, credit protection insurance, or loan repayment insurance, is an insurance product that enables consumers to ensure repayment of credit if the borrower dies, becomes ill or disabled, loses a job, or faces other circumstances that may prevent them from earning income to service the debt. It is not to be confused with income protection insurance, which is not specific to a debt but covers any income. PPI was widely sold by banks and other credit providers as an add-on to the loan or overdraft product.
The Massachusetts health care reform, commonly referred to as Romneycare, was a healthcare reform law passed in 2006 and signed into law by Governor Mitt Romney with the aim of providing health insurance to nearly all of the residents of the Commonwealth of Massachusetts.
Inclusive capitalism is a theoretical concept and policy movement that seeks to address the growing income and wealth inequality within Western capitalism following the financial crisis of 2007–2008.
Creating shared value (CSV) is a business concept first introduced in a 2006 Harvard Business Review article, Strategy & Society: The Link between Competitive Advantage and Corporate Social Responsibility. The concept was further expanded in the January 2011 follow-up piece entitled Creating Shared Value: Redefining Capitalism and the Role of the Corporation in Society. Written by Michael E. Porter, a leading authority on competitive strategy and head of the Institute for Strategy and Competitiveness at Harvard Business School, and Mark R. Kramer, of the Kennedy School at Harvard University and co-founder of FSG, the article provides insights and relevant examples of companies that have developed deep links between their business strategies and corporate social responsibility (CSR). Porter and Kramer define shared value as "the policies and practices that enhance the competitiveness of a company while simultaneously advancing social and economic conditions in the communities in which it operates", while a review published in 2021 defines the concept as "a strategic process through which corporations can turn social problems into business opportunities".
Tata AIG General Insurance Company Limited is an Indian general insurance company and a joint venture between the Tata Group and American International Group (AIG). Tata Group holds a 74 percent stake in the insurance venture with AIG holding the balance of 26 percent.
Fixed annuities are insurance products which protect against loss and generally offer fixed rates of return. The rates are typically based on the current interest rate environment. They are offered by licensed and regulated insurance companies. State insurance/insolvency funds guarantees vary from state to state, and may not cover 100% of the Annuity Value. For example, in California the fund will cover "80% not to exceed $250,000."
In the United States, health insurance marketplaces, also called health exchanges, are organizations in each state through which people can purchase health insurance. People can purchase health insurance that complies with the Patient Protection and Affordable Care Act at ACA health exchanges, where they can choose from a range of government-regulated and standardized health care plans offered by the insurers participating in the exchange.
The concept of The Fortune at the Bottom of the Pyramid originally appeared as an article by C. K. Prahalad and Stuart L. Hart in the business journal Strategy+Business. The article was followed by a book with the same title that discusses new business models targeted at providing goods and services to the poorest people in the world. It makes a case for the fastest growing new markets and entrepreneurial opportunities being found among the billions of poor people 'at the bottom of the [financial] pyramid'. According to Bill Gates, it "offers an intriguing blueprint for how to fight poverty with profitability."
In the United States, individually purchased health insurance is health insurance purchased directly by individuals, and not those provided through employers. Self-employed individuals receive a tax deduction for their health insurance and can buy health insurance with additional tax benefits. According to the US Census Bureau, about 9% of Americans are covered under individual health insurance. In the individual market, consumers pay the entire premium without an employer contribution, and most do not receive any tax benefit. The range of products available is similar to those provided through employers. However, average out-of-pocket spending is higher in the individual market, with higher deductibles, co-payments and other cost-sharing provisions. Major medical is the most commonly purchased form of individual health insurance.
A cost of poverty, also known as a ghetto tax, a poverty premium, a cost of being poor, or the poor pay more, is the phenomenon of people with lower incomes, particularly those living in low-income areas, incurring higher expenses, paying more not only in terms of money, but also in time, health, and opportunity costs. "Costs of poverty" can also refer to the costs to the broader society in which poverty exists.
An inclusive business model is a type of business model that seeks to create value for low-income communities by integrating them into a company's value chain on the demand side as clients and consumers, and/or on the supply side as producers, entrepreneurs or employees in a sustainable way.
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