Old research helped perpetuate the stereotype that feeling poor causes people to make short-sighted financial decisions; they choose a smaller payment now over a larger payment later. Like taking out a high-interest loan to make rent.
“Does that mean that they’re stupid, they’re short-sighted, they’re impulsive, they just want money now? That’s one interpretation,” San Diego State University Marketing Professor Eesha Sharma said. “Another is that they have really important needs and paying their rent today might feel a lot more important.”
Sharma studies the psychology of feeling poor — that you don’t have enough time or money. Anyone can feel poor, Sharma said. Maybe their income is sufficient for survival but their car breaks down, or they’re trying to save for a child, home or retirement. Even a rich man might “feel poor” if he can’t afford the yacht he’s eyeing.
She said the association between poverty and shortsighted decision-making was widely spread but not properly substantiated. The studies that did appear to support it only looked at people who were flooded with immediate needs, like lack of housing security or food. But what if people were faced with longer-term needs?
Sharma, along with fellow researchers Stephanie Tully and Xiang Wang, set out to answer that question. They ran a series of experiments involving both immediate and longer-term needs.
In one, for example, they messaged people who were planning a wedding. They helped create a feeling of scarcity by asking questions about financial concerns around wedding planning. Then, they told participants they would be entered into a lottery for a cash prize and could choose $200 immediately or $300 several months later.
They found that scarcity on its own didn’t cause impatience. It was the wedding date.
If their wedding were before the larger payout, participants were more likely to choose the smaller, sooner payout. But when their wedding date was after the payout, they were more likely to choose the larger, later payout.
When the need was less urgent, not only did the “shortsighted effect” previously associated with feeling poor go away — sometimes, it reversed.
“People actually become more patient, potentially, arguably more thoughtful when their needs have longer time horizons,” Sharma said, “challenging this view that there's something about the psychology of poverty that just automatically, uniformly makes people unable to think about the future.”
The takeaway?
“Being poor or feeling poor doesn’t necessarily make you a poor decision-maker,” she said.
The research, published online Thursday in the American Psychological Association's Journal of Personality and Social Psychology, may lend more credibility to direct cash assistance programs, where people can choose which of their needs to meet.
Sharma had words of encouragement for people who are financially struggling:
“It's not really helpful to be told that you're making bad decisions and you're making bad decisions because you're poor, and we don't find evidence for that,” she said.
In other words, give yourself a break.
