“Foolish Spending Habits” of the Poor – Now Explained by Economists

steak

In America, middle-class people get angry when they see the poor buying steak and lobster with their food stamps, especially when they themselves can’t afford these items.

In India, the middle and upper classes get angry when they see the poor without enough food to eat, wasting money on lavish religious festivals and funerals (up to 40% of their household’s yearly income).  The King of Swaziland banned lavish funerals in 2002 for this same reason.

In Morocco, the middle and upper classes wonder how the village poor can have a satellite dish, a television, a DVD player, and a cell phone, and yet, are subsisting merely on bread and sugary tea!

In all countries, many of the poor seem to be making very poor food choices, spending their very limited food money splurging on junk-food items, rather than on healthy foods which would provide adequate nutrition for their families.  For example, in Britain, George Orwell describes poor British workers as subsisting  on an appalling diet of white bread and margarine, corned beef, sugared tea, and potato.  They prefer this to living on a more healthy diet of brown bread and raw carrots.

So why are the poor, the world over, making these seemingly bad decisions?

The answer, according to economists who have studied this question (Banerjee & Dufflo, Poor Economics, 2011),  is that  things that taste good, or things that make life less boring are a priority for the poor.

“The less money you have, the less you are inclined to spend it on wholesome food…When you are unemployed, you don’t want to eat dull wholesome food.  You want to eat something a little tasty.” Examples of tasty food might be cake, fried foods, chocolate,  a bag of chips, or even just a cup of sugary tea.

In America, a poor man in in his early 20’s, with numerous debts to other people, spent his paycheck on personal pleasures.  He purchased new tattoos, new clothes,  a weekend vacation, and some upgraded accessories for his car, instead of making payments to his creditors.

In rural villages, life can be quite boring for the poor.  “There is no movie theater, no concert hall, no place to sit and watch interesting strangers go by.  And not a lot of work, either.”  In modern Morocco, Banerjee & Dufflo found that many men lived in small houses without water or sanitation, and struggled to find work.  “But they all had a television, a satellite dish, a DVD player, and a cell phone,”  even though their families had very little food to eat.  When asked why, one of them responded, “Oh, but television is more important than food!”

So how do the poor survive depressions?  George Orwell explained it perfectly.  “Instead of raging against their destiny, they have made things tolerable by reducing their standards.  But they don’t necessarily reduce their standards by cutting out luxuries, and concentrating on necessities; more often, it is the other way around…Hence, in a decade of unparalleled depression, the consumption of all cheap luxuries has increased.”

According to economists Banerjee & Duflo, “The poor are skeptical about their supposed opportunities, and the possibility of any radical change in their lives…Therefore, they focus on the here and now, on living their lives as pleasantly as possible, and on celebrating when the occasion demands it.”

–Lynne Diligent

 

Advertisements

Tags: , , , , , , , , , , , , , , , , ,

22 Responses to ““Foolish Spending Habits” of the Poor – Now Explained by Economists”

  1. amseghir Says:

    Thank you Lynn for the very interesting article. I really like the range of topics you can cover. (Y)

    I don’t seem to subscribe to many of these economists’ ideas. While I do agree with them when they say that “things that taste good, or things that make life less boring are a priority for the poor.” I don’t think that the poor think that TV is more important than food. People might be poor, but they’re not stupid. And this opinion expressed here is not the opinion of a poor person, but that of a STUPID person.

    Having a TV set, a satellite dish or a mobile phone is NO LONGER a luxury in Morocco. Things like that have become as necessary as having a pair of shoes! Furthermore, not ALL the poor buy satellite dishes or TV’s. Sometimes, they get them for free or for very very cheap prices from their richer relatives, or from richer employers who decide they no longer want those items in their houses.

    Oh, I almost forgot, I think that everybody loves tasty food. It’s not that the poor are genetically or mentally predisposed to like it more than the rich. It’s just that the rich can have it whenever they want it, so they’re not in a rush, and can afford the luxury of thinking about their health. The poor, on the other hand, don’t get to eat tasty food ALL the time. When you see poor people buying expensive food, you should know that it doesn’t happen ALL the time. What might give you the impression that it’s happening all the time is that there are TOO many poor people. So, if you go to the supermarket and see poor people buying expensive food, you should bear in mind that they’re NOT the very same people you saw last time!! There are too many poor people and it gives the impression that poor people are always behaving like that. I think this is one of the downsides of categorizing people. We usually suck the humanity out of them, and start treating them as flock… Guilt by association, if you wish.

    Like

    • Lynne Diligent Says:

      Abdelmjid, thank you for such a thoughtful comment. I find it interesting that you feel a TV set, satellite dish, and mobile phone are necessities now, rather than luxuries. I could easily do without any of these things. So I think what we find to be a necessity must be what has existed in our lives since the time we were children. Personally, I find paper and pen, and books a necessity, but perhaps younger adults would not agree! I liked your point about sometimes people are able to get these items used, for free, or for very cheap prices and aren’t necessarily paying full new prices for these things.

      I really liked your point about the rich and middle classes being able to afford tasty food whenever they want, whereas the poor don’t get to eat it all the time; yet, people make strong moral judgments about the poor ANY time they see the poor buying anything but wholesome food. You’ve also made a good point that it’s not always the same poor people who may be buying luxuries on various days or weeks. I hope to deal with these precise points (also discussed in Duflo and Banerjee’s book, Poor Economics, 2011) in an upcoming blog post on the real driver of the worldwide obesity trend.

      Regarding the man they quoted from Morocco who said, “TV is more important than food,” I will snap a picture of the couple of pages with the entire discussion and send them to you very soon.

      Like

  2. Annie Martin Says:

    If one has never been “poor,” or economically challenged , then any generalizations about the state of being is just a biased opinion. Until one has “walked in ones shoes,” there is no way that one can relate to the mindset. I pray that one day, life allows everyone to experience the brokenness of being “poor.” With all of the civil unrest, financial collapse, and blatant sin that has infiltrated America and other countries recently, a universal state of poverty is only a matter of time!

    Liked by 1 person

  3. Lynne Diligent Says:

    H.R. (from LinkedIn post): “Agree to an extent. I think there is anther mentality involved. People stuck in a vicious cycle of poverty are not far sighted. They cannot afford to be. They live in the ‘Now’ and ‘Today’ and give it their all. If a poor man who hasn’t tasted cakes in his life finds a 100 dollar bill, is he going to head to the Bank to invest in a fund? I don’t think so. Happiness is a state of mind we instinctively seek. This I think is a human tendency. If an otherwise financially stable man wins the lotto what does he do? Does he head to the Bank to wisely invest or does he book a world cruise? All very well for the well to do to be angry at the spending habits of the poor, especially when you don’t understand the psychology of poverty. In India, the poor say that we have no wealth hence ‘honour’ is our only wealth and they hence, by cultural and social pressures, spend on marriages and social ceremonies even by borrowing to keep up what they think is their honour among peers. Foolish? Easy to sermonise but drill deep down and you will find reasons of normal human psychology.”

    Like

  4. Lynne Diligent Says:

    Dan Skognes (from LinkedIn): “You can’t buy steak, seafood, liquor, or non-food items on food stamps. That law was changed some time ago.”

    Lynne’s Reply: Dan, thank you for commenting. People have never been allowed to buy liquor, or non-food items with food stamps. The steak and seafood thing is probably on a state-by-state basis. The news articles I find on the web (and I’ve been living outside of the U.S. for the past 25 years) indicate that this debate about banning steak and seafood was taking place in Missouri in April, 2015. I’m from Colorado, and people were definitely buying these items in the 1970s as I was told about it by a family member who worked in the checkout line of a supermarket in Denver. But the point of mentioning it in this article, is this is what the public perception is. I also personally know people who have done this within the past year. I don’t know how long ago you are referring to. I’m also not saying that they should NEVER eat these things; everyone needs something special occasionally.

    Like

  5. Lynne Diligent Says:

    Quenby Wilcox (from LinkedIn): “The explanation provided by Banerjee & Duflo (rampant consumption of “cheap luxuries” by the poor in place of ‘responsible consumer-spending in face of poverty & hunger’) is only ONE of the causes of ‘Poor Economics,’ & the global economic crisis, in countries around the world. First, as a deluge of studies & reports by the World Bank, IMF, UN, etc. demonstrate, when men control the purse-strings household spending is high in alcohol/drugs, gambling & prostitution. But, when women control the purse-strings in an economy, family consumer spending is concentrated on food, clothing, shelter, education, & community infra-structures. Second, there is an implied assumption here that ‘Rich, wealthy’ people are more responsible with their pocket-books, income, & spending habits. However, a simple examination of our societies (during thousands of years) clearly demonstrates that the ‘Rich’ are AS IRRESPONSIBLE with their money (and the money of others in the case of bankers & financiers), as the ‘Poor’. The belief & argumentation that the ‘Poor’ are fiscally irresponsible, while the ‘Rich’ are fiscally responsible is just another myth that has been advanced & promoted by the political ‘Right’ in the past 40 years in order to justify the ever prevailing Reaganomics trickle-down theory. — A THEORY THAT HAS BEEN SHOWN TO BE NOT ONLY FALSE, BUT ONE THAT IS DESTROYING OUR ECONOMIES & DEMOCRACIES AROUND THE WORLD.”

    Lynne’s Reply: Quenby, of course the middle class and the rich spend irresponsibly, too. Everything you say here is correct, and indeed, there are many other causes of being poor, which are covered in the book Poor Economics. This was only one very small part. Interestingly, I just read an email going around this week which advised men, in order to have a happy marriage, to let their wives control the purse strings. This way, the wife will spend carefully, and never ask her husband at the end of the month, “Where did all the money go?”

    Like

  6. Lynne Diligent Says:

    Dan and Quenby, I just came back to add one more comment. I think you both missed the point of my post, or most likely, I didn’t clearly make the point I intended to very well. The main point was by understanding the motivation and thinking behind these decisions, for those of us who are more fortunate to be more understanding and less judgmental. I certainly felt less judgmental of the poor after reading Banerjee and Duflo’s book, Poor Economics, which I do highly recommend.

    Like

  7. Lynne Diligent Says:

    Nathan Hayes (from LinkedIn): Dear Ms. Lynne Diligent; This was a very interesting article of which I can not explain why these things happen. Thanks for sharing and keep up the good work.

    Like

    • amseghir Says:

      There is also another point that I forgot to mention. This point regards the SELFISH RICH people who hate to see poor people buying expensive things. They see it as a violation of the rich’s entitlements. Especially if they see them buying stuff with their food stamps. I think the rich’s reasoning in such cases would be something like:”I work really hard to make money and be able to buy this expensive kind of food, and you just buy it with my tax money? We can’t accept this!” I’m not saying that ALL the rich think this way, but I’m sure some of them do.

      Liked by 1 person

  8. Lynne Diligent Says:

    Email from an American friend: “This is bang on – I see it in our family as well (both my wife and I come from lower middle class to working class backgrounds).”

    Like

  9. Lynne Diligent Says:

    Email from another American friend: “Interesting, Lynne, especially the references to George Orwell. Makes sense.”

    Like

  10. Lynne Diligent Says:

    T.L. (from Facebook): “Lynn, I would think education, intelligence level or laziness has something to do with it too. It’s a tough subject. Rich or poor people have a fundamental desire to live well, even if it’s only for a few short hours. I never understood people who wanted an expensive wedding that cost a year’s salary. To me that’s a waste of money.”

    Like

  11. Lynne Diligent Says:

    R.P.B. (from Facebook): “My father sold prom dresses. One year there was a deep recession and he thought no-one would splurge on an expensive dress for one night’s use, but it turned out to be his best year ever. Parents thought there was so much they couldn’t afford they would sacrifice to give their daughter an experience to remember. What you see as waste is someone else’s reassurance that he or she is not a loser who can’t afford pleasure.”

    Like

  12. Jim Jansson Says:

    Maybe this also explains why Starbucks does so well.

    Liked by 1 person

  13. Lynne Diligent Says:

    J. W. (from LinkedIn): “Excuse me? I think this observation applies to rich and poor alike; “things that taste good, or things that make life less boring are a priority for the poor”

    Why should one’s economic status dictate what they choose to eat?”

    Lynne’s Reply: J.W.,of course everyone likes tasty food. But what this post is about are the JUDGMENTS people who are not on assistance are making about the people who ARE on assistance.

    I’ll give you one example that happened last year to someone I knew. A close family member was living in America last year and was often having to go hungry for not having any food to eat. (I helped with sending money from overseas several times, but I found the family member had little to no interest in learning to cook or take the time to bother to cook, much less cook economically. For example, I often suggested things such as cooking a whole chicken, then after eating a bit the first night, slicing the rest and freezing it in packets, easily enough to last for five to seven meals. It can be used for sandwiches, or the slices placed over toast, with some homemade gravy sauce, and served with vegetables. There are many things that can be done. But never once did this person ever attempt this. One time her boyfriend–also a poor person who probably is going nowhere in life–got his paycheck, and kindly bought her about seven pizzas from Pizza Hut. She put these in the refrigerator and told me that more than half of them went bad and she had to throw them out. I asked her why she hadn’t cut up the pizzas and frozen them in individual packets (or even frozen each whole pizza, aside from the first one). She told me she “hadn’t thought of that.” These are just a number of poor decisions (in my opinion) that she made. She spent her limited food dollars only on “specialty items that she liked,” and pre-prepared foods (such as mashed potato flakes, rather than cooking a potato, because that is “too much bother”). These are the kind of decisions I am talking about in this post. She ended up hungry and malnourished out of a combination of entitlement and laziness. This is also quite different than a poor person who occasionally splurges on something delicious. If you take the time to learn to cook properly, ALL foods can be made tasty and delicious at a very moderate price. (I speak as someone who has done such personally for 40 years.)

    Like

  14. Lynne Diligent Says:

    Email from an American friend: “Wow, very well written. I liked the last paragraph and thought it was spot on!”

    Like

  15. Lynne Diligent Says:

    A.N. (from Facebook): “During a recent holiday in South Africa I saw people living in shacks with sattelite dishes with new cars parked outside. They would even steal electricity from the main supply which non-shack dwellers pay for. The ANC provided some homes for these people only for them to sell/rent to illegal immigrants.”

    Like

  16. Lynne Diligent Says:

    J.C. (from LinkedIn): “Interesting article! As far as what peoples in other Countries do, I don’t know, and therefore cannot respond appropriately. The very first paragraph (Americans on food-stamps) struck me. Sure, there are a small percentage of peoples that know how to “work the system,” and they are typically in a long-term social assistance love-affair with the free-stuff! Also, “they” can use their food stamps to obtain lobster, steaks etc because they have additional sources of income that they are not claiming, either through illegal means or means of others helping them and not claiming it.
    The bottom line is, assistance programs are set up to provide with short term (not long-term) “needs.” This gets exploited because there are those that see it as a “additional and supplemental income” while having no intention of getting off of it or giving it up! This is where our social programs become abused and ruin it for the rest.

    The article does bring up a good point though; poor people may forgo paying some bills in lieu of having occasional pleasures! That is their choice, (as i see it). I do hear (when the conversation comes up) that more-often, wealthy people [often] harshly judge them for their choices. Thereby, perpetuating the negative stereotypes associated with poor people; this is also unfair, and not necessarily accurate as a conclusion!”

    Like

  17. Stephanie T Says:

    The poor are the rich peoples customers!!! Billboards and commercials everywhere selling shyt no one needs! Factories all over the place manufacturing shyt no one needs!

    Wants are needs!!! Money is a game that requires a Lot Of Skill that very few master or even do fair!!!

    Religion collecting billions from the poor, did you know poor people think its not a business and the money is needed to spread the word of god! Playing tricks with their mind, give your money to go to heaven when you croak. Its a form of gambling called a con. Some churches look like palaces of a royal family. All Tax free. Buying the bible and reading it yourself has no power without giving the organization a cut of your money your entire life. Evil God….

    Like

  18. Ashley Ostrowski Says:

    I work in an elementary school with children from lower economic homes and I see some of them in new clothes, particularly shoes. From my perspective, parents or guardians (I know several who live with grandparents or other relatives) try to use these items to make up for a lack of other items.

    Like

    • Lynne Diligent Says:

      That’s a good observation and I’ve noticed new sport shoes in particular recently among several of my students in elementary and middle school (not poor students). I think there is some prestige attached to these items, especially among kids, to have the “right” shoes or “right” clothes. If you don’t have the right ones, you get bullied. If you have the right ones, you get prestige. I see no reason why this shouldn’t be equally true no matter what is one’s socioeconomic group.

      Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s


%d bloggers like this: