The Cognitive Cost of Poverty

An anonymous reader writes "It's a common trope that most poor people are poor because they're lazy or just inherently bad with money. But a new study (abstract) makes a fascinating find: being poor actually reduces your cognitive capabilities when thinking about money. 'In a series of experiments run by researchers at Princeton, Harvard, and the University of Warwick, low-income people who were primed to think about financial problems performed poorly on a series of cognition tests, saddled with a mental load that was the equivalent of losing an entire night's sleep. Put another way, the condition of poverty imposed a mental burden akin to losing 13 IQ points, or comparable to the cognitive difference that's been observed between chronic alcoholics and normal adults.' This makes the difficulty in climbing out of poverty much easier to understand. The researchers also demonstrated causality by showing that thinking about a very small expense led to no impairment, while thinking about a very large expense did. They confirmed this by looking at a group of farmers in India who tend to receive most of their income at one time — immediately following their harvest. Shortly before that payment, when the farmers had very little money, their scores dropped as well."

Comments

FTFY

[ThePhilips]

It's a common trope in USA that most poor people are poor because they're lazy or just inherently bad with money.

FTFY.

Otherwise, I have seen plenty of rich people who were also pretty bad with money.

Re:FTFY

[girlintraining]

They are unable to comprehend that by drinking water instead of three sodas a day, and putting the savings into a tax deferred education savings account, they can easily afford in-state tuition at a good university.

Or perhaps they comprehend it just fine, but they make a choice you disagree with: Like after working a 10 hour shift for $7.25 an hour, they would like to have at least a small creature comfort, so they buy a six pack of beer (or soda), instead of going home and enjoying tasteless and bland tap-water. The thing about being poor that everyone forgets is that everything that might relieve the boredom and stress of long hours for little reward costs something. It's easy to say "I'll save a few dollars a day" when you've got a fat paycheck -- but when you have nothing and you're looking to those couple of dollars leftover in your wallet, it's hard to say "You don't exist, go away". But psychology aside, there's still the troubling issue of your really, really bad math skills.

Let's analyze your example of "three sodas a day". For the 2012-2013 year, tuition costs for state residents at a community college averaged $8,655 across the country. We're going to ignore cost of living adjustments, peripheral expenses like books, lost wages, and everything else. We're going to take just that tuition number and that will be the cost of "easily afford" at a "good university".

The cost of a 'soda', which to give you the best case scenario, will be for one of the plastic 16 oz variety, which averages about $1.50 right now. So we're going to go with $4.50 per day being blown on soda. In 1,923 days -- about 5.25 years worth of not drinking soda per year of tuition.

Now, given the rate of inflation combined with the rate that tuition has been rising, it's safe to say that number will be higher. And when you consider that tuition is only perhaps 2/3rds of the fees you'll be paying... that number goes up even more.

Bottom line here is that your assertion that saving the equivalent of three sodas a day ($4.50) can buy someone a college education is possible, but absurd. You would spend half your working life waiting. In reality, you're going to have to save more to make it happen. Working a minimum wage job, you're only going to be pulling in about $36 a day (at best). Odds are good you'll be clearing even less.

You're asking someone for whom three sodas a day accounts for about 1/8th of their total personal income to save even more to make this do-able. You'd have to at least double, and probably triple, the savings rate, to get into college within a reasonable timeframe.

Frankly, when you take rent, utilities, and everything else into consideration... a minimum wage job simply cannot sustain that level of investment. Not unless you want to starve, rack up debt elsewhere (like late fees, bank overdraft fees, etc.) -- which will happen anyway when you're living paycheck by paycheck.

The bottom line here is that what these scientists is saying has nothing to do with the conclusions you and many others are reaching: Which is that you can "think" your way out of poverty, or that the problem can be resolved by simple mathematical ability. It is much bigger than that. All this study does is show that when financial resources become severely constrained, people are poor judges of how to best utilize those limited resources.

It provides no guidance on a viable strategy for emerging from that environment, and your flippant advice about simply not drinking soda is symptomatic of another, perhaps larger problem, that poor people face: Prejudice.

Re:FTFY

[mc6809e]

And obviously there are a lot of homeless people who need psychiatric help, but after Regan, they're never going to get it.

This is one of those myths that just won't die.

Defunding of psychiatric hospitals generally occurred AFTER those hospitals lost patients that were allowed to leave after the Psychiatric_survivors_movementsuccessfully fought for deinstitutionalization.

Mental hospitals lost about 80% of their residents when those patients were given the choice to discharge themselves.

Re:FTFY

[nbauman]

Well, I am not sure where there study group came from, but there is a tremendous amount of real-world examples to show that just giving money to people does NOT fix poverty. Don't believe me, take a good hard look at every big city in America for the last 40 years. The amount of money given to people in poor environments is staggering, and there is no real numbers to show that we have made a dent on poverty (by dent, I mean helped an appreciable percentage of people out of poverty).

The study comes from Science magazine. http://www.sciencemag.org/content/341/6149/976.abstract and if you click on the author affiliations you'll see that they came from Harvard, Princeton, U British Columbia, and U Warwick. The Woodrow Wilson School of Public and International Affairs is not a left-wing think tank.

They provided good evidence to support their conclusion that when people are poor, they're under stress, and they're less able to make good decisions.

Other things being equal, giving money to people does fix poverty. The most successful poverty program in the country, in terms of bipartisan approval, was the Earned Income Tax Credit, and it did move a lot of people into significantly less poverty. So did the food stamp program.

Over a time scale of about 50 or 60 years, black people started out in the south in terrible poverty. The federal poverty program by Kennedy and Johnson gave them more income. We don't have the same poverty in the south now that we did in 1950. One dramatic chart is of the reading and math level of black students, which climbed dramatically from 1970 to the latest data, according to the NAEP. http://nces.ed.gov/nationsreportcard/

I know people who worked in Africa with families who were living on the subsistence level. One of the successful things they did was give them cash. They'd give the families $10 or $20 and the first thing they'd do was pay their debts. Next month, they'd buy necessities, like furniture. Next month, they'd start a little business, like selling things on the side of the road.

Re:FTFY

[cas2000]

> So, they go down to occupy wall street bitching at a very
> arbitrary set of people (the top 1%, or the top 3.14159%, or
> whatever) about why their life sucks and somebody else
> needs to pay.

the fallacy of envy is complete bullshit. it's nonsensical propaganda pushed by those who don't want to think about how the world actually works, and by those who don't want anyone else to think about it. it's part of the same ideological blinker set that says there are no systemic problems, it's all just the fault of "a few bad apples" or "individuals making the wrong choices".

people aren't pissed off at the 1% merely because they own 99+% of the world's wealth and make 99+% of the worl'd income. we're pissed off because of *how* they do it, not just the fact of it.

we're pissed off because they're fucking thieves and parasites and when they steal trillions they then get a government handout of trillions more (all the while deriding welfare and social safety nets).

they are large-scale thieves in $10,000 suits - and far more damaging to everyone in the world than the small-time thieves in $5 kmart tracksuits.

If you're poor

[phantomfive]

If you're poor, it sucks for you, but you can pull yourself out of poverty, even with all the challenges. It's been done again and again, and there are support groups for you when you're really in trouble (project 90 has some amazing results with homeless drunks, for example). If you're poor you shouldn't use a study like this as an excuse to stay poor. You can escape.

I really like project 90, which I linked to before, because they do a good job helping people overcome challenges like, and move on to a better life. If we're going to help poor people, we need to help them in a way that lifts them out of poverty, not in a way that keeps them trapped in a charity lifestyle.

Re:If you're poor

[Desler]

I have worked with homeless people. Next to none of them were poor by choice. Many of them were poor and homeless due to being a couple of major causes:

1) Mental issues such as schizophrenia and kicked out of the institution they were receiving treatment from.
2) Addiction issues.
3) Some major bill came along that wiped out their money.

So if you want to claim that people are poor by choice you need to provide some evidence because all you have is an anecdote that doesn't match what I've ever seen.

Re:If you're poor

[Desler]

And to add to my previous post:

For persons in families, the three most commonly cited causes, according to a 2008 U.S. Conference of Mayors study (pdf) are:
Lack of affordable housing
Poverty
Unemployment

For singles, the three most commonly cited causes of homelessness are:
Substance abuse
Lack of affordable housing
Mental illness

http://www.pbs.org/now/shows/526/homeless-facts.html

Funny how none of the major causes are "chose to be poor".

Re:Strategy

[Proudrooster]

Statistically, there are two pieces of data that determine success in public education:
* Socioeconomic Status of the Parents
* Highest Education Level Achieved by Parents

The researcher Andrew Maslow in 1943 basically drew the same conclusion in his research:
http://en.wikipedia.org/wiki/Maslow's_hierarchy_of_needs

His conclusion was is that if you aren't safe, fed, loved, and have self esteem that aren't going to be a problem solver.
Everything old is new again. I guess the new buzz words are "cognitive load" vs. "problem solver."

"Poverty makes you crazy"

[BenEnglishAtHome]

30 years ago I worked with a former social worker of long experience who had just changed jobs seeking a steadier paycheck. She said that poverty produced a constant stress over not feeling safe that basic needs would be met. Her view was that that constant stress often resulted in serious mental disfunction.

"Poverty makes you crazy...or at least stupid" was her standard rejoinder whenever we ran across someone who did something stupid with what little money they had.

From the Hierarchy of Needs, to my co-worker, to this new study - has anything changed? Not really. But it seems the relevant points need to be made over and over again because they just aren't getting through.

Re:"Poverty makes you crazy"

[fermion]

First, I read this paper yesterday and for a piece of social science I was rather impressed with the methodology. I think they took care to cover the variables and carefully limit their conclusions to what could be inferred fro the experiment.

That said, the media reports, as normal, tend to focus on the headline value rather than the research. Although the paper does talk about poverty, it is in the context of having to live in poverty, not being poor. From the conclusion
The findings, in other words, are not about poor people, but about any people who find themselves poor.
The paper specifically talks about providing scaffolding to those who find themselves with funds, instead of just expecting them to act like an average person with enough money. The authors call the normal methods of intervention as incurring 'cognitive taxes' and say that things such as "Filling out long forms, preparing for a lengthy interview, deciphering new rules," should be minimized on the basis of this research. T

So I think that just saying poor people make poor financial decisions, or variations of that, is not really what is being concluded. We all make poor decisions, even if we are well off. I buy pints on Hagan Das for $4 that I really do not need with money I really do not have. Other people lease a BMW or go out and spend huge amounts on wine. Even if one has money today, it is hard to justify these extravagances for a purely rational point of view. A person spending every penny the make is certainly to some degree irrational no matter how much they make.

Rather, I think that the research can tell us what happens to people when they become fiscally stressed. People who are pepertually in this state are certain a prime concern, and we must take any effect on cognitive behavior into account, but anyone in financial straights are going to be effected as well. In the paper they use farmers as an example, and attempt to show that better decisions are made after a good harvest rather than later when thing are less abundant.

Here is how I would think about it using an example from the housing bubble. At first, when times were good, people bought hoses to live in or rented as they could. They paid their mortgages or rent and all was well. At time went on, and their friends were living better, and they felt poor, these people bought homes or bigger homes, often with adjustable rate, interest only, or buble mortgages. At some point they actually did become financially stressed, as property taxes went up, or repairs had to be made, or interests rate rose, and they begin to make truly poor decisions, such as borrowing equity from their homes to pay for vacations, or beer, or fancy dinners, or a new BMW.

Now clearly these people did not make these poor choices on their own. They were helped, even prodded. Which is, IMHO, the point. Perhaps we should not have policy that tend to push people into worse situations. It may not really the homeowners fault that they lost their house if cognitive function decreases with financial stress. It may not be students fault that they have big students loans if the school took advantage of, and ever promoted, the financial stress on the student or parents.

Re:5 years and compound interest = college

[sumdumass]

This is the kind of idiocy that keeps poor people poor. Wise decisions with money can move someone out of the poor house just as easily as they can keep them in.

In the soda example, at 3 soda's a day per $1.50 a piece or $4.50 a day, if you were to open an account stating with $4.50 then add a equivalent of $4.50 per day for the duration of a month (about $135 a month)- every month, earning just 3% interest would give you about $38,457.00 in 18 years. That certainly is not a small number. But how many other choices are made that could equate to similar savings? Suppose that you could save the same amount per month by packing a lunch instead of eating at fast food joints and skipping a movie from time to time (135+135). This new savings gives you a total of about $76,907.00 in those same 18 years.

So while you will not be driving around in a Bently due to this savings, thanks to compounding interest, you certainly could be sending your first born to college or perhaps placing a down payment on a retirement home or any number of things that would make life much more enjoyable than a soda and BigMac might.