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I lived this first hand. I grew up in extreme poverty (by the US standards anyways) where my electricity/water were cut off occasionally and occasionally would

by kirinan 11y ago

I lived this first hand. I grew up in extreme poverty (by the US standards anyways) where my electricity/water were cut off occasionally and occasionally would have to wonder if I was going to eat that night. Though this is still better than most of the world, it sucked. a lot. No christmas, no birthdays. The most interesting part is now im software engineer making really good money, I can still see the rest of my family with the same mindset that enabled that kind of poverty. While I live below my means, they regularly live above it. They lack the self control to regulate their spending, if they get money they spend it like it might go away if they don't. Its institutional in ways because their parents were poor. Although I broke the cycle, my brother didnt and shows a lot of the same patterns. This article hits the point head on. I wonder if there is a way to hack the cycle and reduce the institutional aspect of poverty.

MaysonL 11y ago
I wonder if there is a way to hack the cycle and reduce the institutional aspect of poverty. Check out what Harlem Children's Zone is doing: they seem to have at least the beginning of an answer.
- kirinan 11y ago
  Thats brilliant, seems well founded in research and well implemented. I really hope that it can continue to scale to more and more places. 445 communities is a smashing success already!
deleted 11y ago
[deleted]
- RussianCow 11y ago
  I doubt most people at that level of poverty are thinking about the interest rate.
  - zo1 11y ago
    As much as I think that government is partly to blame for a lot of systemic poverty problems, I'm going to have to agree with you. I think it's fairly obvious that the poor make bad "loans" even when the interest rates are higher. At the end, it's all about moderation and planning. One can plan for a high-interest loan, heck I've had one (14%) until recently. It's definitely been an incentive to save, and work on getting it re-financed on better terms.
- MarkMc 11y ago
  Some people remain poor even with very high effective interest rates. Here is quote about poor fruit vendors in Chennai, India, who have an effective interest rate of 4.69% per day (from an excellent book about poverty called 'Poor Economics' [1]) ---------------------------- We have already seen, in the previous chapter, another example of people who had lucrative opportunities to save but did not use them: the fruit vendors from Chennai, who borrowed about 1,000 rupees ($45.75 USD PPP) each morning at the rate of 4.69 percent per day. Suppose that the vendors decided to drink two fewer cups of tea for three days. This would save them 5 rupees a day, which could be used to cut down on the amount they would have to borrow. After the first day with less tea, they would have to borrow 5 rupees less. This means that at the end of the second day, they would have to repay 5.23 rupees less (the 5 rupees they did not borrow, plus 23 paisas in interest), which, when added to the 5 rupees they saved that second day by again drinking less tea, would allow them to borrow 10.23 rupees less. By the same logic, by the fourth day, they would have 15.71 rupees that they could use for buying fruit instead of borrowing. Now, say they go back to drinking their two cups more tea but continue to plough the 15.71 rupees they had saved from three days of not drinking so much tea back into the business (that is, borrowing that much less). That accumulated amount continues to grow (just as the 10 rupees had turned into 10.71 after two days) and after exactly ninety days, they would be completely debt-free. They would save 40 rupees a day, which is the equivalent of about half a day's wages. All just for the price of six cups of tea! --------------------- [1] http://www.amazon.in/Poor-Economics-Radical-Rethinking-Poverty/dp/1610390938 http://www.amazon.in/Poor-Economics-Radical-Rethinking-Pover...
tomp 11y ago
There was a really good article a while ago (this one, I think [1]), about why the poor make bad choices. Basically, the gist of it is that long-term, it doesn't matter - even if they made "good" choices, they would still remain poor. So they make "bad" choices (unprotected sex, pregnancy, smoking, impulse buying) that give them short-term pleasure, and hope they will get by somehow. Do you think this would be possible for your family as well? For example, maybe your mindset is "save" because you earn a good salary and you know that if you save, in a few years you'll be well-off and will be able to afford exponentially more, whereas the rest of your family objectively has no way out of poverty, so they don't even try. [1] http://www.theguardian.com/society/2014/sep/21/linda-tirado-poverty-hand-to-mouth-extract http://www.theguardian.com/society/2014/sep/21/linda-tirado-...
- themartorana 11y ago
  I think this is a pretty basic and important point. Even though money "doesn't by happiness" it can buy escape, even for short periods of time. That escape is as powerful as any drug when your day-to-day life is significantly depressed, with no foreseeable exit. So for some people, there's not much difference in $100 and $100,000 without education and impulse control.
- evanpw 11y ago
  I agree that savings and restraint in spending are not the main issue. But on the other hand, if you: 1) Graduate high school, 2) Wait until age 21 to get married, and wait until marriage to have children; and 3) Have a full time job (any full time job), then you have a 2% chance of living in poverty, and a 75% chance to be middle class. So in order to argue that bad choices don't matter, you need to make the case that one of these three steps is impossible for most people who are poor. I think your best bet is #3. [1] http://www.brookings.edu/research/opinions/2013/03/13-join-middle-class-haskins http://www.brookings.edu/research/opinions/2013/03/13-join-m...
  - tomp 11y ago
    It's not clear from the article if those percentages include all of the society or just those that started out poor. If it's the former, it might be just correlation, not causation.
pron 11y ago
> I wonder if there is a way to hack the cycle and reduce the institutional aspect of poverty. Countries with lower poverty rates have traditionally done this with welfare, free healthcare and social programs all funded by high tax rates. It works, but it doesn't fit well with the American ethos of every man to himself, where "redistribution of wealth" is seen as an encroachment on liberty rather than its biggest facilitator (as it's seen in other countries).
- themartorana 11y ago
  Mostly by people who receive a benefit of said redistribution. http://www.politifact.com/texas/statements/2011/apr/22/rachel-maddow/msnbc-host-rachel-maddow-says-texas-routinely-rece/ http://www.politifact.com/texas/statements/2011/apr/22/rache...

by kirinan 11y ago

MaysonL 11y ago

I wonder if there is a way to hack the cycle and reduce the institutional aspect of poverty. Check out what Harlem Children's Zone is doing: they seem to have at least the beginning of an answer.

kirinan 11y ago
Thats brilliant, seems well founded in research and well implemented. I really hope that it can continue to scale to more and more places. 445 communities is a smashing success already!

deleted 11y ago

[deleted]

RussianCow 11y ago
I doubt most people at that level of poverty are thinking about the interest rate.
- zo1 11y ago
  As much as I think that government is partly to blame for a lot of systemic poverty problems, I'm going to have to agree with you. I think it's fairly obvious that the poor make bad "loans" even when the interest rates are higher. At the end, it's all about moderation and planning. One can plan for a high-interest loan, heck I've had one (14%) until recently. It's definitely been an incentive to save, and work on getting it re-financed on better terms.
MarkMc 11y ago
Some people remain poor even with very high effective interest rates. Here is quote about poor fruit vendors in Chennai, India, who have an effective interest rate of 4.69% per day (from an excellent book about poverty called 'Poor Economics' [1]) ---------------------------- We have already seen, in the previous chapter, another example of people who had lucrative opportunities to save but did not use them: the fruit vendors from Chennai, who borrowed about 1,000 rupees ($45.75 USD PPP) each morning at the rate of 4.69 percent per day. Suppose that the vendors decided to drink two fewer cups of tea for three days. This would save them 5 rupees a day, which could be used to cut down on the amount they would have to borrow. After the first day with less tea, they would have to borrow 5 rupees less. This means that at the end of the second day, they would have to repay 5.23 rupees less (the 5 rupees they did not borrow, plus 23 paisas in interest), which, when added to the 5 rupees they saved that second day by again drinking less tea, would allow them to borrow 10.23 rupees less. By the same logic, by the fourth day, they would have 15.71 rupees that they could use for buying fruit instead of borrowing. Now, say they go back to drinking their two cups more tea but continue to plough the 15.71 rupees they had saved from three days of not drinking so much tea back into the business (that is, borrowing that much less). That accumulated amount continues to grow (just as the 10 rupees had turned into 10.71 after two days) and after exactly ninety days, they would be completely debt-free. They would save 40 rupees a day, which is the equivalent of about half a day's wages. All just for the price of six cups of tea! --------------------- [1] http://www.amazon.in/Poor-Economics-Radical-Rethinking-Poverty/dp/1610390938 http://www.amazon.in/Poor-Economics-Radical-Rethinking-Pover...

tomp 11y ago

There was a really good article a while ago (this one, I think [1]), about why the poor make bad choices. Basically, the gist of it is that long-term, it doesn't matter - even if they made "good" choices, they would still remain poor. So they make "bad" choices (unprotected sex, pregnancy, smoking, impulse buying) that give them short-term pleasure, and hope they will get by somehow. Do you think this would be possible for your family as well? For example, maybe your mindset is "save" because you earn a good salary and you know that if you save, in a few years you'll be well-off and will be able to afford exponentially more, whereas the rest of your family objectively has no way out of poverty, so they don't even try. [1] http://www.theguardian.com/society/2014/sep/21/linda-tirado-poverty-hand-to-mouth-extract http://www.theguardian.com/society/2014/sep/21/linda-tirado-...

themartorana 11y ago
I think this is a pretty basic and important point. Even though money "doesn't by happiness" it can buy escape, even for short periods of time. That escape is as powerful as any drug when your day-to-day life is significantly depressed, with no foreseeable exit. So for some people, there's not much difference in $100 and $100,000 without education and impulse control.
evanpw 11y ago
I agree that savings and restraint in spending are not the main issue. But on the other hand, if you: 1) Graduate high school, 2) Wait until age 21 to get married, and wait until marriage to have children; and 3) Have a full time job (any full time job), then you have a 2% chance of living in poverty, and a 75% chance to be middle class. So in order to argue that bad choices don't matter, you need to make the case that one of these three steps is impossible for most people who are poor. I think your best bet is #3. [1] http://www.brookings.edu/research/opinions/2013/03/13-join-middle-class-haskins http://www.brookings.edu/research/opinions/2013/03/13-join-m...
- tomp 11y ago
  It's not clear from the article if those percentages include all of the society or just those that started out poor. If it's the former, it might be just correlation, not causation.

pron 11y ago

> I wonder if there is a way to hack the cycle and reduce the institutional aspect of poverty. Countries with lower poverty rates have traditionally done this with welfare, free healthcare and social programs all funded by high tax rates. It works, but it doesn't fit well with the American ethos of every man to himself, where "redistribution of wealth" is seen as an encroachment on liberty rather than its biggest facilitator (as it's seen in other countries).

themartorana 11y ago
Mostly by people who receive a benefit of said redistribution. http://www.politifact.com/texas/statements/2011/apr/22/rachel-maddow/msnbc-host-rachel-maddow-says-texas-routinely-rece/ http://www.politifact.com/texas/statements/2011/apr/22/rache...