The Inclusive Economy
Poverty & Self-Control
By Sean Luechtefeld on 07/01/2011 @ 03:00 PM
Traditional thought concludes that the reason many people are poor is because they lack the self-control or individual motivation to move beyond their current financial situations. While public discourse about health care and entitlement reform has contributed to a more complex way of thinking about these issues, those entering these discussions often form their opinions from the speculation of others – either you believe poverty is caused by lack of self-control, or you believe poverty is beyond the control of the individual, but little evidence exists either way.
This week, we came across an article in The New Republic that challenges the notion that lack of self-control causes poverty and suggests that, on the contrary, poverty may cause a lack of self-control. For more background, read the full version of “Why Can’t More People Escape Poverty?” here.
Drawing conclusions based on research conducted in the field of behavioral economics over the past 13 years, contributor Jamie Holmes shows the link between poverty and self-control by arguing that when immense mental energy has to be expended on making decisions, then subsequent decision-making is more difficult and thus less thorough because humans lack the capacity to exert self-control in multiple, consecutive settings.
Okay, so what did I just say? Well, let’s take one of the examples Holmes gives. Imagine something as simple as deciding where to go to dinner. For those of us included within the mainstream economy, we make that decision based on preference. If we are in the mood for seafood, we go get seafood; if we crave Mexican, we get Mexican. However, for individuals whose income constrains their ability to go out to eat often, the decision is much more involved. Can I afford to go out in the first place? Can I afford to spend a little bit more to get what I really want? Does the occasion really merit me going out to eat? What if it costs more than I expect?
Since so much is wrapped up in this one decision, the next decisions that need to be made (e.g., should I work extra hours at work this weekend? Should I make a larger payment on my credit card this month or should I pay to repair the washing machine?) become much more difficult. Since we have self-control fatigue, we either withdraw from the decision-making process altogether, or we expend less effort and risk making a poor economic choice.
As another example, think about the comfort items and services many of us take for granted – washing machines, access to a personal vehicle and help with child care. Each of these saves valuable time, time the middle class spends on entertainment and the acquisition of more comfort items. However, for those living in income and asset poverty, the activities associated with these luxuries – going to the Laundromat, taking the bus rather than driving and taking your children with you as you run errands – further drains the ability to exert self-control. Of course, with self-control fatigue comes higher financial risk.
So, while in no way do I mean to suggest that the jury is in with regard to the correlation between self-control and poverty. But, imagine for a minute that the findings Holmes cites are correct. What might that mean for the priorities we set in terms of making certain services accessible? How does this influence the policies we might advocate on behalf of? How might these findings be applied to other behaviorally-informed research endeavors? Share your thoughts and resources in the comments section below and let us know your take on this issue!
Special thanks to CFED’s resident behavioral economics expert, Genevieve Melford, for sending this article my way!