The Answer is Simple - Don't Pay Beneficiaries Cash

A recent article in the New Zealand media about Social Development Minister Anne Tolley's plans to crack down on mobile truck shops caught my eye and I discussed it with my wife, who has worked for many years in the social services sector. My wife confirmed the essential facts of the story - that some mobile shop operators were charging high prices and high rates of interest and were targeting customers in poor areas, with the result that some customers were getting into financial difficulty (or greater financial difficulty than they already were). Interestingly, she gave the same example of the $30 packet of cornflakes that is given in the article (without having read the article), suggesting that this is more of a meme than a real example.

Unusually for our invariably one-sided, scandal-mongering media, the article does include comments from the 'executive chairman' of the largest mobile shopping company, Home Direct, who appears happy to disclose his interest rates and fees, suggesting he has no nefarious practices to hide. And it is to Anne Tolley's credit, perhaps, that she is not planning to introduce new laws specifically to deal with this perceived problem but rather to use existing laws. However, I think this article, and Anne Tolley's response to it, is inherently dishonest about the true nature of the problem.

If, as the article alleges, poor people (and let us assume they are state welfare beneficiaries because almost all people on low incomes in New Zealand are entitled to welfare benefits) are being ripped off by unscrupulous mobile shop operators, this can be for only one of two reasons. Either the mobile shop operators are committing fraud (e.g. by misrepresenting their pricing or interest rates) or the poor customers are so desperate or foolish they knowingly pay above the odds. If it is the former, then it is simply a matter for the police. If it is the latter (and the article and Anne Tolley's response suggest they think it is) then the problem is a bit more fundamental.

In New Zealand generally we pay welfare benefits to people in cash and leave it up to them to decide how best to spend the money. Welfare workers like my wife will tell you that this situation provides the opportunity for gross abuse. For example it is commonplace in communities reliant on welfare for absentee male ex-partners to turn up on welfare pay day to threaten and abuse solo mothers to obtain what they see as being their share of the woman's welfare payment. It is also the day that the TAB (the government-owned betting chain), the poker machine halls, the public bars and the Lotto shops in these areas do the most business. It is not unusual for welfare recipients to have exhausted their entire two week payment within a few days of having received it, leaving them with no other means of feeding and clothing their children and paying their rent until the next pay day. It is not surprising therefore, that they buy from mobile shops that offer credit, even when this is at exorbitant rates.

The answer to all these problems is the same - don't pay beneficiaries cash, pay them in kind. Give them food, rent, transport, medicines and any other necessities of life for them and their children, but don't give them the cash that provides the opportunity for them to be ripped off. Unless, of course, you believe they are entirely capable of looking after their own finances, in which case they don't need state welfare at all.