Well, duh! I think most of us knew this already:
“Poor people make poorer decisions. They do. The question is why,” said Timothy Smeeding, director of the Institute for Research on Poverty at the University of Wisconsin-Madison.
Princeton University psychologist Eldar Shafir and his colleagues set about exploring this question by studying small-scale sugar cane farmers in Tamil Nadu of southern India. These farmers receive the bulk of their year’s income all at once, shortly after they harvest and sell their crops. In this way, they go from being quite poor to comparatively rich very quickly. Shafir’s research found that the farmers defaulted on bills, pawned more belongings and took out more loans before the harvest than they did after.
Shafir and his team visited 464 farmers in 54 villages both before and after the harvest. Researchers administered two tests of the farmers’ cognitive ability, a pattern-matching puzzle and another in which they had to count.
The farmers scored significantly lower on the tests administered before the harvest, when funds were low, which suggested to researchers that the farmers’ worries were interfering with their ability to think. In fact, worrying about money, the study said, negatively impacted cognitive ability as much as missing a night of sleep, causing the IQ to drop a full 13 points on average.
Because researchers were able to assess the farmers both before and after the harvest, they were able to account for variables that likely contribute to cognitive ability like family background, childhood nutrition, limited education and exposure to lead, pesticides or other poisons.
Shafir said that the findings suggest that human beings have a finite amount of “mental bandwidth” and that financial worries leave the mind with less resources available to handle decision-making and other tasks. If this is true, the study argues, then poor people’s circumstances affect their life choices and decisions, not the other way around.