Poor Economics: Rethinking Poverty & the Ways to End it

by Abhijit V. Banerjee

The richer we are, the more these decisions are made for us. Salaried workers contribute to Social Security, and their employers often contribute something more to a provident fund or a pension plan. If they want to save more, they have to decide just once, and the money is then automatically deducted from their bank accounts. The poor have access to none of these props: Even the savings accounts that are supposed to make it easier for them to commit to a goal still require an active step of depositing money. To be able to save every week or every month, they have to surmount self-control problems over and over again. The problem is that self-control is like a muscle: It gets tired as we use it, and therefore it would not be a surprise if the poor find it harder to save.11 This is compounded by the fact, which we discussed in Chapter 6 on risk, that the poor live under considerable stress, and stress-induced cortisol makes us choose more impulsive decisions. The poor thus have to do a harder job on fewer resources.