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Poverty's Brain Drain

Financial stress means not just lower income, but also less mental bandwidth.

Financial stress means not just lower income, but also less mental bandwidth, research by Anandi Mani, published in Science magazine, shows.

Poverty drains brainpower, new research by Anandi Mani, Warwick Economics associate professor and CAGE fellow, and colleagues, shows. The research is the first to establish that poverty directly causes lower intellectual capability. The findings were published in Science magazine, widely considered to be the world’s leading journal of original research.

“ Our findings offer a new explanation for many of the behaviours of the poor. It is the first to establish that poverty is a direct cause of lower mental attention, and it clarifies that these behaviours need not be coming from innate attributes of poor people.”

“Poverty causes lower intellectual capabilities; it is not just a correlation,” Mani said.“There is considerable evidence that the poor are less effective on various dimensions. They are less productive workers, less attentive parents, worse managers of their time and money,”

The findings suggest that being poor saps the very mental energy needed to take on the tasks that might lead them out of poverty – such as education, job training and time management.

The research revealed the effect of pressing financial concerns upon low-income individuals’ performance on common cognitive tests. In the experiments, financial worries reduced the results on IQ tests by an average of 13 points, equivalent to the drop from the loss of a full night’s sleep, or from chronic alcoholism.

Two experiments – one with shoppers in a New Jersey shopping mall and the other with sugarcane farmers in Tamil Nadu, India - underlie the research.

In the experiment in the mall, researchers found that considering a hypothetical financial decision, such as how to pay for a car repair, affects people's performance on unrelated spatial and reasoning tasks. Both rich and poor individuals did equally well if the repairs were inexpensive, but only the performance of the poor dropped significantly when the repairs were expensive.

In Tamil Nadu, sugarcane farmers are very short on money right before the harvest, because of the long crop cycle and more flushed with money a few weeks after harvest. The research found that the same farmers do much better on similar IQ tasks after harvest than before, when they report lower ability to cope with ordinary bills. Their performance is not explained by lack of nutrition, greater physical effort due to harvest, or biological stress factors.

“ One insight is to appreciate that people who are materially poor are also short on mental attention resources, directly because of poverty. ”

The findings provide new insights about the effects of financial concerns and for the creation of policies aimed at the poor.

“When a person is poor or becomes poor, it’s not only money that he or she is lacking, it’s also mental bandwidth,” Mani said. “Policy design should be mindful of that.

“Policies such as automatic defaults for enrolment in savings programmes, simpler forms for programme eligibility, and text reminders for important tasks may be helpful for the poor,” Mani said. “In the harvest context, a financial product that releases a steady stream of income throughout the year may be better for farmers than receiving one lump sum return and facing a lot of financial anxiety before harvest.”

No doubt, people of all income levels face stress, for instance if they are short of time. Deadlines can capture our attention, and we may have less mental bandwidth for other important, but non-urgent tasks, such as parenting. But people with more financial resources may be able to "buy more time" with money, or cut back on their commitments -- which is a luxury that the poor do not have.

The research was conducted by Mani and colleagues Sendhil Mullainathan at Harvard University, Eldar Shafir at Princeton University, and Jiaying Zhao at the University of British Columbia.

Anandi Mani is Associate Professor in the Department of Economics at the University of Warwick and a Research Fellow at its Centre for Competitive Advantage in the Global Economy (CAGE)

 

About the Author

Anandi Mani

Anandi Mani is an associate professor in the University of Warwick Department of Economics and a senior researcher and capacity building fellow it its Centre for Competitive Advantage in the Global Economy (CAGE).