The other day in class, I explained to students that the average American retires with less than $25,000 in assets and that most people have less than $500 in the bank. And one student responded: “I guess they’ve made bad choices.”
Needless to say, it was a “teaching moment,” as we talked about what it means to live in or near poverty in the United States. And that was before I read a new study by Anuj K. Shah et al., “Some Consequences of Having Too Little,” published in a recent issue of Science. (The article is behind a paywall but it is discussed in the Los Angeles Times.)
According to the authors, “Poor individuals often engage in behaviors, such as excessive borrowing, that reinforce the conditions of poverty.” They often “behave in ways that reinforce poverty. For instance, low-income individuals often play lotteries, fail to enroll in assistance programs, save too little, and borrow too much.” The question is, why?
The theory developed by Anuj K. Shah et al. is that “Resource scarcity creates its own mindset, changing how people look at problems and make decisions.”
To understand this hypothesis, consider how people manage expenses. When money is abundant, basic expenses (e.g., groceries, rent) are handled easily as they arise. These expenses come and go, rarely requiring attention and hardly lingering on the mind. But when money is scarce, expenses are not easily met. Instead of appearing mundane, they feel urgent. The very lack of available resources makes each expense more insistent and more pressing. A trip to the grocery store looms larger, and this month’s rent constantly seizes our attention. Because these problems feel bigger and capture our attention, we engage more deeply in solving them. This is our theory’s core mechanism: Having less elicits greater focus. . .
The second part of our theory follows readily from the first. Because scarcity elicits greater engagement in some problems, it leads to neglect of others. While focusing on the groceries from week to week, we might neglect next month’s rent. While consumed with meeting tomorrow’s manuscript deadline, we might fail to prepare next week’s lecture. Attentional neglect appears in many domains. Low-income homeowners often do not attend to regular home maintenance while they focus on more pressing expenses. Neglected, these small repairs become major projects. Similarly, in areas where water-borne illness is common, families might focus on pressing daily expenses while failing to procure periodic water treatments.
In other words,
It’s not that people living in poverty don’t save or tend to ignore the future; they just see things differently.