I’m too damn cheap to get a subscription to the Economist, even though it is, by far, the best financial/news magazine out there. Since I’m
frugal cheap, I’ve discovered a solution. If you sign up to be a member of the website, The Economist will give you access to 10 articles a week. Then you can subscribe to the RSS feed of the section of the magazine you want, which gives you a little preview of each article. That lets me read a chunk of the magazine for free each week. Sometimes, I’ll share the most interesting articles on the Twitter. You’re welcome.
Why did I just spend 102 words telling you about The Economist? Because last week’s edition had an interesting article in it, about the growth in selling to America’s poor. Basically, the article talks about how many Americans are struggling to make ends meet, and how they have to scrimp and save in other areas in their lives to afford expensive things like college and health care.
Profiting from poverty is surprisingly easy. Take McDonalds for example, a company that’s been doing quite well lately. Working poor still want to go out for dinner, for whatever reason. Because they don’t have much disposable income, they find themselves at the golden arches, probably ordering crap off the dollar menu. Everybody’s happy, especially McDonalds’ shareholders. The same principal applies to Wal-Mart, Target and many other businesses.
Is this a trend you should invest in? Here’s a few ways that you can, in areas you might not have realized.
One estimate that I’m too lazy to look up and link to put the number of underbanked Americans at over 80 million. Obviously, most of these underbanked Americans are poor. After all, what use does a poor person have for most financial products? They aren’t investing. They aren’t really using credit either. They just exist, spending their money as soon as they get it.
Saying that, there’s an opportunity there for an astute company. These people still need paycheques cashed. Immigrant workers will need to send money back home. But they’re not financially savvy enough to use most services banks offer. There’s money to be made from these people, currently being made from payday loan places and cheque cashing shops. We all know the fees on these things are outrageous.
Where will these people go in the future? Wal-Mart is trying to make inroads in this market, they’re starting to move more aggressively into credit cards. Many people (myself included) think it’s only a matter of time until they become a financial services company alongside a retailer. After all, they can’t keep growing forever.
Internet Pawn Shops
Nobody wants to admit they’re short of funds. The walk of shame into the pawn shop to pawn your crappy TV is probably the worst thing ever. Luckily for everyone, the pawn business has evolved.
Rather than dealing with a local dealer, pawning stuff has moved onto the internet. The online pawn shop sends you an envelope, (from Fedex, who owns the thing) you send in your gold jewelry, nice watch or electronic, and you get your loan.
The beauty of the process is the anonymity of the whole process. Pawning something is embarrassing. Nobody wants to do it. Moving the whole process online will help grow the industry. Plus, an internet based pawn shop won’t have the overhead that a bricks and mortar shop does, meaning the person who pawns something gets more, and the store makes more too. It’s a win-win for everyone.
Different Ways of Getting Stuff
You’re a member of the working poor, and you want a big TV. You have no savings and no credit. All you want to do is watch the football game on the big screen each Sunday. Since poor people generally don’t care about their finances, they decide to rent the TV. It’s expensive, but both the renter and owner are happy with what they get from the transaction.
Don’t laugh. This is happening in all sorts of industries. Pay as you go cell phone packages are experiencing all sorts of growth, both from lower income people and older people who don’t use their phone enough to get value from a $50 a month plan.
There are websites that offer everything from book trades to video game trades to places where people can buy cheap used stuff. All of these sites will do well in poorer economic times where people just can’t afford to replace their used books or DVDs as quickly as they’d like.
Direct Energy is even trying out a pay as you go program for electricity. Who knows what the future will bring in these industries.
Readers, what areas do you think will do well because of the poor? Are the poor really that lucrative of customers?