Why do poor people make so many bad decisions? It’s a harsh question, but look at the data: poor people borrow more, save less, smoke more, exercise less, drink more and eat less healthily. Why?
Margaret Thatcher once called poverty a “personality defect”. Though not many would go quite so far, the view that there’s something wrong with poor people is not exceptional. To be honest, it was how I thought for a long time. It was only a few years ago that I discovered that everything I thought I knew about poverty was wrong.
It all started when I accidently stumbled on a paper by a few American psychologists. They had travelled 8,000 miles, to India, to carry out an experiment with sugar cane farmers. These farmers collect about 60% of their annual income all at once, right after the harvest. This means they are relatively poor one part of the year and rich the other. The researchers asked the farmers to do an IQ test before and after the harvest. What they discovered blew my mind. The farmers scored much worse on the tests before the harvest. The effects of living in poverty, it turns out, correspond to losing 14 points of IQ. That’s comparable to losing a night’s sleep, or the effects of alcoholism.
Keeping people poor is a political choice we can no longer afford, with so much human potential wasted. We need a universal basic income.