Over at Marginal Revolution this morning, Alex Tabarrok examines a paper from the Chicago Booth School of Business that looks at why people living in poverty do things against their own interest, like borrow too much money, play the lottery, and save too little:
SMS argue that immediate problems draw people’s attention and as people use cognitive resources to solve these problems they have fewer resources left over to solve or even notice other problems. In essence, it’s easier for the rich than the poor to follow the Eisenhower rule–”Don’t let the urgent overcome the important”–because the poor face many more urgent tasks.
Basically, this says that since I’m not worried about how I’m going to pay my rent next month, or whether or not I’ll have enough money to buy groceries, I can think about what I need to do over the long-term to stay financially stable. People without money spend much of their time figuring out how to address these immediate needs, so saving for the future isn’t as important as paying for the things they need now.
This seems a bit obvious, no? I’d like to know what the researchers think about what comes next after coming to these conclusions. What can we do to help people living in poverty make good decisions that will benefit them over the long-term? That’s a difficult question to address, and it involves these bigger issues of fair pay, affordable housing and SNAP.