Research Indicates People With Economic Constraints Are So “Overwhelmed” They Make Bad Financial Decisions

September 4, 2013  |  

“Poor people aren’t stupid,” NBC News says, they just make “bad decisions from being overwhelmed.” New research suggests that the concerns plaguing a life of penury causes too much clutter in the mind. As a result, those at lower socio-economic levels make poor financial decisions that push them even more deeply into poverty.

The wealthy, according to the study published in Science, have more coherent thoughts because of their access to amenities such as a chauffeurs, accountants, and nannies to ameliorate concerns about transportation, money, and kids.

“The poor use less preventive health care, fail to adhere to drug regimens, are tardier and less likely to keep appointments, are less productive workers, less attentive parents, and worse managers of their finances. These behaviors are troubling in their own right, but they are particularly troubling because they can further deepen poverty,” the researchers said. Sounds harsh, but if people are swamped with worry, they can’t be at their best.

The lead investigators of the study conducted an experiment in a New Jersey shopping mall and among sugarcane farmers in India.

The 101 New Jersey shoppers were given a series of problem-solving quizzes that would remind them of their financial situation. For example, they were asked “how they would handle a 5 percent salary cut, a 15 percent salary cut; or an emergency car repair costing either $150 or $1,500,” NBC writes. With that in their heads, they were also given basic IQ and computer-based tests of focus and concentration.

The researchers discovered that both high-and-low earning shoppers did well on the IQ test with only minor financial issues in the back of their mind. “But when the car repair was more expensive, or when the salary cut was higher, the lower-earners did significantly worse on the later tests than the higher-earners,” NBC said. The researchers then concluded that poor finances can distract one from thinking clearly.

Researchers got the same result when they questioned sugarcane farmers in India, who are paid just once annually for their harvest. “The farmers made more poor decisions in real life when faced with a financial crunch – they pawned more items – a truly awful financial decision – and were twice as likely to borrow money,” the article says.

The researchers say that although people often blame personal failure and non-motivating environments for poverty, they’ve concluded that poverty itself is the culprit behind poor cognitive processes which keep the destitute from mobilizing up the income ladder.

Do you agree with the researchers?

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