Thinking on poverty

Hannah Bailey reflects on how behavioral insights can contribute to better designed financial interventions for low income tenants.

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It encourages a shift away from approaches that see poverty as reflecting character flaws to one that focusses on the context of poverty, influenced by the book ‘Scarcity’ (Mullainathan and Shafir, 2013).

It is also in part a response to the tendency for the use of behavioural insights in housing services to focus on the rent collection process; behavioural science has significant scope to change housing services and our relationship with our tenants in more meaningful and efficient ways.

What is Scarcity? How does it affect thinking?

The book uses the concept of ‘scarcity’, defined as a feeling of not having enough and coming in many forms, including poverty, time and loneliness; it is a mind-set that can affect anyone if the context and circumstances are in place.

This post focusses on the effects of poverty (by which I mean having a long-term income that is supposed to meet basic needs, or an income that fluctuates around this) and uses this term in place of the wider concept of ‘scarcity’.

Poverty captures the mind and impacts on cognition in two ways; first is a reduction in our ‘mental bandwidth’ which we use to make decisions and process information.

Living in poverty impacts more negatively on thinking than serious sleep deprivation and is relentless in its effects; you can’t take a break from poverty.

Experiments show that the grind of poverty reduces our mental control, making us more impulsive and causing negative behaviours that appear character driven but are consistently created by the circumstances of poverty.

This is a clear challenge to financial interventions that focus on individual behaviours where it is actually contextual factors that are causing them.

Poverty also captures the mind by causing ‘tunnelling’, which is focussing on one thing to the neglect of others.

Focussing can be positive, tunnelling is not; it inhibits the weighing of costs and benefits and future-oriented thinking.

Understanding this can help determine the timing of interventions, such as on the day of a benefits payment rather than the day before, so increasing likelihood of success as the tenant is not tunnelling on managing poverty.

It may also explain some non-engagement with services; effectively the tenants focus is elsewhere.

Borrowing goes hand in hand with tunnelling, the present presses in a way that the future does not, causing borrowing from tomorrow to firefight today’s problems, often via expensive payday loans.

Borrowing is not due to poor self-control but to poverty itself.

Trade-off thinking

When poor, all choices involve some sort of trade off; every time money is spent on one thing, you are acutely aware that it’s not being spent on another.

Frequently there are negative outcomes regardless of what choice is made, often resulting in choice paralysis with no choice being made at all.

Understanding the severe mental distress this causes and that there is often no good choice to be made are key to designing meaningful, human centred interventions.

Poverty induces a tendency to fail and to fail more often.

A simple error can have significant costs and consequences, there are also more opportunities to make errors, creating a cascade of errors from simple mistakes.

Poverty also creates logistically harder problems, consuming time, mental bandwidth and increasing tunnelling; often inducing a cycle of poverty compounding failures.

This situation is compounded by financial shocks such as an unexpected job loss or benefit sanction.

These shocks can unravel long periods of positive behaviour.

The key point is the poverty mindset varies along with income fluctuations that are not captured by averaging income measures.

If interventions are designed around average rather than variable incomes, failures are designed in.

People in poverty behave more rationally with money.

Living in poverty seems to stabilise an internal sense of how much money is actually worth, meaning more care is put into getting more value from how it is spent.

When thinking of poverty as a character flaw, it’s easy to miss the skills developed to cope with it.

Interventions need to acknowledge and build on the knowledge and capacity many tenants have developed to cope with living on low and fluctuating incomes.

Thoughts on applying this knowledge

Simple changes are powerful especially for someone who is effectively chronically sleep deprived.

From keeping home visits to reducing website clicks, it all makes a difference.

Build a human centred service

Programmes with rigid structures will have limited and short-term success.

Consult with people who are coping well with living in poverty and build programmes based on their knowledge.

Change what is measured

When evaluating interventions, should we also measure cognitive benefits?

Helping someone gain mental bandwidth could result in changes that break the poverty cycle; current measures don’t capture cognition.

Provide flexible financial products if we know that borrowing is an inevitable part of living in poverty, why not make it easier and timelier to borrow money?

Can we build in a savings account when collecting rent?

Offer micro loans?

This post may be a challenging read as it offers such a different perspective on this topic.

I think we need to ask the question, is better to keep locating the problem of poverty induced behaviours with overburdened individuals or does it make more sense to change the context and services around them?

As social landlords I think it is a question worth asking.

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