It might seem strange but there are many choices that poor people make that could save tens of dollars a year, that people don’t take advantage of. I would weakly disagree that poor people are good at saving money, especially if it requires a small investment first.
I think part, but not all of that, is due to rationally putting a high premium on avoiding catastrophe, with poor families often operating barely above the limits of survival. You want to wait to sell your crops in 2 months when the market is better but what if your crops get eaten by pests, or the market actually collapses? For a poor family, that could spell total disaster, whereas at least by selling the crops today, at the low harvest season prices, you are guaranteed to get something. (That doesn’t explain the TV though! But I think cash transfer studies suggest that marginal funds are normally spent more wisely than on TVs)
That points to the value of interventions that reduce that risk, e.g. “I’ll lend you money at harvest time and you only pay me back if you can sell your crops at a higher price in the low season” type deals.
On the TV thing, here’s an extended quote from Poor Economics in case it’s of interest to others as well (emphasis mine):
The decision to spend money on things other than food may not be due entirely to social pressure. We asked Oucha Mbarbk, a man we met in a remote village in Morocco, what he would do if he had more money. He said he would buy more food. Then we asked him what he would do if he had even more money. He said he would buy better-tasting food. We were starting to feel very bad for him and his family, when we noticed a television, a parabolic antenna, and a DVD player in the room where we were sitting. We asked him why he had bought all these things if he felt the family did not have enough to eat. He laughed, and said, “Oh, but television is more important than food!”
After spending some time in that Moroccan village, it was easy to see why he thought that. Life can be quite boring in a village. 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. Oucha and two of his neighbors, who were with him during the interview, had worked about seventy days in agriculture and about thirty days in construction that year. For the rest of the year, they took care of their cattle and waited for jobs to materialize. This left plenty of time to watch television. These three men all lived in small houses without water or sanitation. They struggled to find work, and to give their children a good education. But they all had a television, a parabolic antenna, a DVD player, and a cell phone.
Generally, it is clear that things that make life less boring are a priority for the poor. This may be a television, or a little bit of something special to eat—or just a cup of sugary tea. Even Pak Solhin had a television, although it was not working when we visited him. Festivals may be seen in this light as well. …
Orwell captured this phenomenon as well in The Road to Wigan Pier when he described how poor families managed to survive the depression.
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—the more natural way, if you come to think of it—hence the fact that in a decade of unparalleled depression, the consumption of all cheap luxuries has increased.
These “indulgences” are not the impulsive purchases of people who are not thinking hard about what they are doing. They are carefully thought out, and reflect strong compulsions, whether internally driven or externally imposed. Oucha Mbarbk did not buy his TV on credit—he saved up over many months to scrape enough money together, just as the mother in India starts saving for her eight-year-old daughter’s wedding some ten years or more into the future, by buying a small piece of jewelry here and a stainless steel bucket there.
We are often inclined to see the world of the poor as a land of missed opportunities and to wonder why they don’t put these purchases on hold and invest in what would really make their lives better. The poor, on the other hand, may well be more skeptical about supposed opportunities and the possibility of any radical change in their lives. They often behave as if they think that any change that is significant enough to be worth sacrificing for will simply take too long. This could explain why they focus on the here and now, on living their lives as pleasantly as possible, celebrating when occasion demands it.
I think part, but not all of that, is due to rationally putting a high premium on avoiding catastrophe, with poor families often operating barely above the limits of survival. You want to wait to sell your crops in 2 months when the market is better but what if your crops get eaten by pests, or the market actually collapses? For a poor family, that could spell total disaster, whereas at least by selling the crops today, at the low harvest season prices, you are guaranteed to get something. (That doesn’t explain the TV though! But I think cash transfer studies suggest that marginal funds are normally spent more wisely than on TVs)
That points to the value of interventions that reduce that risk, e.g. “I’ll lend you money at harvest time and you only pay me back if you can sell your crops at a higher price in the low season” type deals.
On the TV thing, here’s an extended quote from Poor Economics in case it’s of interest to others as well (emphasis mine):