How Being Poor Makes You Poor [View all]

[n2doc]

September 18, 2013 • By Paul Hieber

Why are the rich rich and the poor poor? It’s a question that gets asked a lot, and a question we should continue asking.
Do the wealthy simply work harder and for longer hours? Are they more willing to take risks and make sacrifices, while the destitute tend to sleep in past 10:00 a.m. and splurge all their cash on Cool Ranch Doritos Tacos from Taco Bell? Or is it more circumstantial—meaning, are the haves forged in homes where education is valued and opportunity abundant, while the have nots come from generation after generation of just scraping by?

According to the BBC, income inequality in the U.S. has grown for nearly three decades, and in 2012 this disparity reached record-breaking proportions when the top one percent of U.S. earners collected 19.3 percent of all household income. For some policymakers and members of the public, this is a problem—and it’s a problem that cannot properly be addressed without examining both the personal and systemic reasons for why some end up so rich while others end up so poor.

New research from a behavioral economist at Harvard and a cognitive psychologist at Princeton might help untangle this ongoing conundrum, if only just a strand or two. In their recently released book, Scarcity: Why Having Too Little Means So Much, Sendhil Mullainathan and Eldar Shafir suggest that those living paycheck to paycheck aren’t as much in their situation because they’re bad financial planners with a history of self-sabotage, but rather that they’re bad financial planners with a history of self-sabotage because of their situation. It’s a subtle yet significant shift.

Relying on data collected from numerous tests and experiments, the co-authors argue that the mental toll of constantly having to deliberate over which credit card should be paid down first or jar of peanut butter placed into the shopping cart depending on the sale both depletes one’s cognitive resources and diminishes the importance of planning for tomorrow, since today’s demands feel just so damn demanding. In other words, when you’re struggling with the necessity of treading water, the ability to calculate which shoreline is closest becomes a luxury.

more
http://www.psmag.com/business-economics/poor-makes-poor-66414/