Why Poverty Causes Bad Decisions

Poverty is neither genetically transmitted nor a cosmic destiny imposed on people, regions, or countries.

We have long known that traditional strategies to combat social exclusion, however well-intentioned, do not offer long-lasting results, nor do they tend to have significant reach. Therefore, attention should be paid to those contributions capable of suggesting other approaches.

Beyond the obvious difficulties of overcoming a status quo based on long-standing political and economic relations between countries, recent research provides a revealing new perspective:

Poverty feeds itself. The psychological burden of living in a context of scarcity affects the human brain, producing a cognitive deterioration that translates into worse life decisions and, consequently, the perpetuation of the state of poverty.

Dave Nussbaum, in his social psychology blog Random Assignment , summarizes perfectly the essence of this study:

One of the obstacles preventing the poor from overcoming poverty is the tendency to make costly financial decisions — such as buying lottery tickets — which only worsens their situation. In the past, these poor decisions were attributed to the personality of low-income citizens or the environment in which they live, with little access to education and poor living conditions.

Living with scarcity changes people’s psychology. (…) When resources are scarce — when people are short of time, money, or food — every decision about how best to use those resources is made with greater urgency than when those resources are abundantly available. This approach may have positive effects in the short term, but it comes at the cost of neglecting other, less urgent demands.

From the comfort of a relatively predictable future, it is easy to question the spending and consumption decisions of the poorest. Who hasn’t been surprised by the images of shacks and slums with satellite dishes?

Entrepreneur and writer Jim Rohn put it lapidary:

“The poor have big TVs. The rich have big libraries.”

This kind of choice is not the cause of poverty, but its consequence. People are not poor because they mismanage their resources, but poverty reduces their ability to manage them better.

This change in perspective can significantly change the focus of financial inclusion initiatives: besides “showing” recipients alternative possibilities that provide them with greater well-being, it is necessary to understand the mental process that leads to making such decisions.

This approach can undoubtedly raise many objections. We would never have such self-destructive behaviors! Even if there were a radical change in our circumstances (a prospect that terrifies most of us to a greater or lesser degree), we are convinced that common sense would come to our aid and we would use our scarce resources wisely.

Through a series of everyday situations, we see how many of the savings and consumption alternatives that we consider commonplace under “normal” conditions, do not seem to be available to us when we operate “in scarcity”.

After every election, the program inflexibly communicates to us what the likely outcome of the election will be. It is shocking to realize that making wrong decisions is very easy when we do it with our head on the scoreboard that, on the left of the screen, warns about how little money we have left to finish the month. I ended the experience with a stomachache and the conclusion that, in our society, being poor consumes so many resources that it is very difficult to stop being… as they wanted to demonstrate.

To end on an optimistic note, and as an example that “difficult” is not synonymous with “impossible,” let’s remember Will Smith’s The Pursuit of Happiness, which tells the true story of millionaire and philanthropist Chris Gardner.

Will Smith in an extremely precarious situation, living off public charity and with a small child in his care, took a series of courageous and perilous decisions with which he not only got off the streets but also became a very rich man and a reference of personal development.

Following the reasoning of this article, one can conclude that the decisions of the real protagonist of the story were correct because they did not reflect a poverty mentality. But a medium-term vision that excluded misery from daily living.

How many people would sleep in homeless shelters while attending a training seminar lasting several months, in exchange for the possibility (not security) of later getting a skilled, well-paying job? Exactly. Not many.