Well good afternoon.
Today I’d like to delve into what some may consider dangerous territory; I generally shy away from discussing anything having to do with the very controversial linkage between intelligence and financial outcomes.
No one, after all, wants to be poor and those of us looking in from the outside of poverty might find it perplexing that the poor seem so stuck making choices that are bad for their long-term finances despite better available opportunities.
But what if the relationship were a circuitous one? In other words, what if, instead of it being the case simply that our intelligence determined whether we would end up in poverty, that being in poverty also affected our intelligence?
Studies that disconnect the two generally, link them under duress
A study discussed in a research article published in Science aimed to address this question through two tests. In the first, they discovered that Indian farmers who were paid once a year at harvest time made worse long-term financial decisions before payment than after payment. This experiment was the less interesting of the two!
The second experiment was held in a New Jersey mall. High- and low-income shoppers were given three sets of questions that tested their intelligence and impulse control:
- A baseline test
- A test after being asked “teaser” questions meant to induce them into thinking about a financial stressor deemed manageable to both groups — perhaps a car repair that cost a couple-hundred dollars
- A test after being induced into thinking about a financial stressor manageable for the high-income group but not for the low-income group — maybe a car repair costing thousands.
In the trials, those with low incomes scored similarly to those with high incomes on the baseline test and the test after receiving the more manageable financial stressor. However, when the stressor became large enough to bust the budgets of the lower-income participants, they scored much worse on the intelligence tests than the high-income participants, averaging 13 IQ points less.
The researchers explain the difference as being one of bandwidth. When the poorer folks in each of the studies used up their cognitive capacity on concerns about money, they had little left for other tasks — like taking IQ tests or, perhaps, making great long-term financial decisions.
I think that the implications could be big.
First, I think these results are interesting enough to warrant more research in the field.
Changing how we give
That the poor aren’t innately dumb should affect the way we give. Public social insurance programs and private charities are far more likely to give stuff rather than cash, and if they do give cash, it’s with heavy constraints. In both cases, the implicit belief of the donor is clear: that we don’t trust the poor enough to know what it is they really need, without realizing that with a little bandwidth, they would probably know much better than those of us who are looking from the outside.
Freeing up bandwidth
As for freeing up that bandwidth, including scarcity as a factor adds an extra layer to a lot of decisions we make together.
After all, we’ve all had glimpses into scarcity at some point or another; who hasn’t pulled an all-nighter, gone a day without eating, or fallen asleep with our head under the comforter? That long-term decision-making suffers when we’re singularly focused on one thing — in these examples, sleep, food, or air — should seem obvious. What we often forget is that the big difference when it comes to scarcity of leftover cognitive capacity is that most of us can pause these constraints when we need to — take a day off work to nap, eat, breathe — whereas the poor usually can’t.
From a policy perspective then, we might set a short-term goal of focus on ways to help free up that bandwidth. As a long-term goal, we could start to think of helping the poor as having a big multiplier effect whereby pulling them enough out of poverty to free up some cognitive capacity would pay off when they’ve got the bandwidth to avoid more bad decisions.
And from a personal perspective, maybe we can just focus on being a little less judgmental to those stuck in a rut.
Have a great weekend 🙂