Natalie Denning
Jul 24, 2017 · 2 min read

I admit I was being glib with that statement. Obviously, some bad decisions can make you poor. But all sorts of people make bad decisions; the effects are just significantly worse when you already live in poverty.

Let’s say a person living in the middle class forgets to pay a bill. Oops! They receive a letter in the mail a few weeks later telling them that they now owe the original amount plus a late fee. They pay the bill and the late fee, and life goes on.

Let’s say a person living in poverty doesn’t pay a bill on time because they don’t have the money for it. They receive a letter in the mail a few weeks later telling them that they now owe the original amount plus a late fee. They pay the bill online and wind up overdrawing their account. They aren’t notified immediately, so a few other minor purchases also wind up incurring overdraft fees. Later on they have to pay another bill late due to lack of funds, and the cycle continues until suddenly they’re getting a payday loan so they can afford groceries.

The same action (not paying a bill) can lead to vastly different outcomes depending on whether someone is already trapped in poverty.

The neat thing about this is how easily someone can flip from one outcome to another just on the basis of having enough money. A lab study that I wrote about previously showed that people’s cognitive abilities suffered when they were worried about financial concerns. Without these concerns, there was no cognitive difference between high-income and low-income participants.

Here’s an example from the real world: When the government began giving money (as part of a UBI program) to people in the North Eastern region of Kenya, most of the recipients actually used the money to start their own small businesses. They didn’t just spend it on food for the next meal, but they invested the money so that they could afford food in the future. It wasn’t that poor people didn’t know how to invest their money for long-term benefits, it’s that they never had enough money in the past to do anything like that.

Anyway, thanks for the response! I realize you were being snarky with your chart, but there’s actually a whole lot to unpack there. 😀

    Natalie Denning

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    Public policy student