by AMINA KHAN
A study in the journal Science offers this insight: No matter who you are, having severely limited funds alters the way you make decisions about using them.
Why do many poor people spend money in ways that seem to squander their already limited resources, like buying lottery tickets? It’s not necessarily that they’re less savvy about financial matters, but a lack of funds appears to affect the way people think, according to new research.
The poor often make decisions that deepen their poverty, such as borrowing money at exorbitant interest rates. Sociologists and behavioral researchers have several explanations for this, including a “culture of poverty” that makes it seem normal to be poor, undermining efforts to join the middle class.
But a study published this week in the journal Science offers another explanation: No matter who you are, having severely limited resources alters the way you make decisions about them.
When money is no object, people handle groceries, gas and rent without a second’s thought, the theory goes. But when there aren’t enough funds to easily meet all these expenses, payers may spend a lot of mental energy focusing on the grocery bill but will then miss a credit card payment, even though they’ll accrue penalties.
This theory would be difficult to test in the real world, said Anuj Shah, the behavioral economist at the University of Chicago who led the study with colleagues from Harvard and Princeton. “In our experiment, we basically tried to make people poor and make them rich.”
Los Angeles Times for more
(Thanks to Asghar Vasanwala)