The Scarcity Trap of Poverty and Debt

First published on January 4, 2018

I did an unusual thing last week. I posted on my Facebook timeline about a charity. I don't do this often. Everyone has their own causes which matter to them, and it's up to them to decide which cause is the one which matters to them. But then I got an email through from a charity I support, who had two matching offers on, meaning that every £1 donated by someone like me or you would be tripled by the charity's other supporters. And it felt too important. Because this charity is a little different.

I learnt about them in Rutger Bregman's book, Utopia for Realists. Among many interesting perspectives and ideas in that book is a description of a rather startling study, done working with some farmers. The seasonal nature of the farmers' work means that they earn almost all their annual income in a very short space of time. At this point - at the end of their 'season' - they have a good amount of money. Later in the year, just before the season, they have almost none. And here is the interesting part: they run various tests with these farmers at both points. For example, an IQ test. It turns out, when the farmers have lots of money, their IQ is significantly higher than when they have no money. They are literally able to make better decisions.

I'm sure this is familiar to many of you. Most of us have had times in our lives where our debts were high - maybe the pressure was rent, or a credit card bill, or someone else we owed money to. Or maybe it was just that we weren't making much money. I have had times when my overdraft was high, times when my credit card debts felt overwhelming, and times when my income was so low that my (modest) outgoings were greater than it, and my money was going down and down and down. And it was really hard at those times, in all sorts of ways.

Now consider the consequences of that study: it is literally harder for us to make logical decisions at those points. There is nothing wrong with us as people; it would happen to anyone - the study is comprehensive enough to be pretty sure that any person would have a lower IQ when they are under significant and serious financial pressure to when they have an abundance of resources.

And this is where the title of Bregman's TED Talk comes from: poverty isn't a lack of character, it's a lack of cash.

And this brings us to the charity, GiveDirectly. They do exactly what they say, they give the money that is given to them directly to some of the poorest people on the planet, making their operation as streamlined as possible so that 90% of donations go straight to those that need it. These people live on $0.75/day, so donating £1 would more than double the income of one of these people for a day. And the results of this giving are astounding. I won't go into all of it here, but you can read more on their website about how people don't stop working if you give them money (in fact they seem to work more) and how the results have transformational results across people's lives, from their work, to their ability to plan for the future, to their relationships with their friends, families and loved ones. This charity is a way to transform the lives of people, and it's easy. It's easy because the data is so strong (so you know it really helps). It's easy because you know where the money is going (so if you have that doubt about bureaucracy and poor quality admin, or money being used for something you don't agree with, you can ignore it here). It's easy because £10/month to me is less than three pints, but to someone in northern Kenya it would double the money they live off for nearly two weeks. And almost every time I find myself thinking deeply about this I donate some more money to the charity.

This is why I am concerned about poverty far more than about inequality. Because imagine what happens each time someone finds their way out of the scarcity space of poverty, anywhere in the world, and is released closer to their full potential. Imagine what we might achieve, what might change. And all it might take is the money to get them out of that scarcity space, to unleash their potential and set them on the upward spiral to whatever awaits them.

And it's also why, at this time of year and at all times of year, if you are struggling with money, then I want you to know you're not alone. Anyone would be finding it difficult, under the kind of pressure you are under. It's so hard. But you can find your way out of it. There is a way.