Published: December 15, 2016
“How can we help those in poverty make better decisions, and why have policymakers consistently struggled to make a significant dent in poverty reduction?”
Reports released last week reveal that a large percentage of the UK population is struggling to escape the poverty trap.
Research from the Joseph Rowntree Foundation shows that 21 per cent of the UK population lives in a low-income household – a proportion that hasn’t changed in a decade. Elsewhere, the Trussell Trust claims that food banks will feed three times more people this Christmas than last.
So why have policymakers consistently struggled to make a significant dent in poverty reduction? And how might Theresa May and Philip Hammond help families who are ‘just about managing’ (the so-called Jams)?
Headline grabbing policies from the Autumn Budget might only have a short-term impact. A rise in the national minimum wage and a ban on letting agent fees for renters may put more money in people’s pockets; but new research suggests that many poverty reduction initiatives are destined to fail unless they are based on a greater understanding of the psychological lives of lower income families.
The emerging ‘science of scarcity’ shows that poverty acts as a punitive ‘tax’ on mental bandwidth, impairing people’s judgement and ability to make good decisions. Poverty reduction policies, however well publicised and targeted, are likely to have limited impact if people are already heavily mentally-taxed by concerns over money, food or time scarcity.
The findings question the widely held ‘economic’ assumption that bad decisions cause poverty or keep people in poverty. Instead, the causal relationship is just as likely to be the other way around – poverty often leads to bad decisions. This partly explains why it’s difficult for one fifth of the UK population to escape the cycle of poverty.
This insight has big implications for behaviour change interventions. Policymakers, NGOs and charities need to consider ways they can build and support the mental bandwidth of impoverished groups to help them make better decisions.
Emerging research suggests this may be as ‘simple’ as adding 700 calories a day to someone’s diet. Similarly, reducing perceived levels of physical pain and sleep deprivation have been shown to increase mental bandwidth and aid decision making. And real world behaviour change trials also demonstrate the importance of getting the timing of interventions right, often before people experience extreme scarcity.
Research in Kenya shows that it’s better to give or gift money while people still have a little cash left, rather than waiting until they have nothing. Penniless and it’s a major strain and tax on mental bandwidth, which can lead to poor decisions. Armed with even a small amount of money and people tend to exhibit stronger willpower and make better decisions that support their long-term interests and goals.
Interestingly the scarcity research isn’t all bad news for lower income families.
People with less money are often better at making comparative judgments because of their focus on expenses and experience with trade-offs (if I buy one thing, it means I can’t buy something else). They are less prone to underestimating the absolute value of discounts, whereas richer groups tend to think about the percentage discount.
Reminding poorer groups of their greater ability in this domain can help to increase agency and sense of control. And ensure they don’t fall for the smoke and mirrors that now typifies many a Black Friday and New Year ‘discount’.
New scarcity research highlights that we need to understand the psychological lives of poorer people if we want to improve their financial plight. But it also shows how measures like improved nutrition can increase mental bandwidth and boost the chances that new policies and financial education programmes will make an impact. Genuine food for thought as we tuck into our turkey dinners.
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