The Psychological Effect of Poverty

In de­vel­op­ing coun­tries like Brazil, whether a child is born into a poor or wealthy fam­i­ly is typ­i­cal­ly a key de­ter­mi­nant of their fu­ture op­por­tu­ni­ties, in­clud­ing ac­cess to qual­i­ty ed­u­ca­tion. Pover­ty makes it such that even ba­sic house­hold needs com­pete for scarce fi­nan­cial re­sources, as par­ents try to al­lo­cate mon­ey to in­vest­ments in chil­dren. Re­cent re­search sug­gests that scarci­ty cre­ates psy­cho­log­i­cal ef­fects that po­ten­tial­ly add to that prob­lem: pover­ty makes it such that wor­ry­ing about these ba­sic needs com­petes for men­tal re­sources, as par­ents try to al­lo­cate at­ten­tion to eval­u­ate high-re­turn op­por­tu­ni­ties to in­vest in chil­dren.

CCWD supports the Sustainable Development Goals

The Sus­tain­able De­vel­op­ment Goals of this Pro­ject

In the face of these psy­cho­log­i­cal ef­fects, could it be that even if poor par­ents had ac­cess to the fi­nan­cial re­sources need­ed to in­vest in their chil­dren’s ed­u­ca­tion, they would still miss those op­por­tu­ni­ties be­cause fi­nan­cial wor­ries brought about by pover­ty lead to fo­cus too nar­row­ly on present needs, at the ex­pense of fu­ture re­turns of in­vest­ments in chil­dren?

This project stud­ies this ques­tion in the con­text of an ed­u­ca­tion­al pro­gram in Brazil. In a lab-in-the-field ex­per­i­ment with 2,223 pub­lic school par­ents, we ran­dom­ly as­sign some par­ents, but not oth­ers, to tem­porar­i­ly high­er fi­nan­cial wor­ries by ask­ing them what they would do if, hy­po­thet­i­cal­ly, their chil­dren’s school start­ed charg­ing for text­books and uni­forms. Al­though hy­po­thet­i­cal, the ques­tion suc­cess­ful­ly makes par­tic­i­pants wor­ry more about house­hold bills due by the end of the month. We then en­dow all par­ents with R$ 10, which they can de­cide to keep as air­time cred­it on their phones or to ex­change for six months of an SMS nudge pro­gram that, as shown by pre­vi­ous re­search, has the po­ten­tial to im­prove their chil­dren’s learn­ing out­comes sig­nif­i­cant­ly.

We find that so­cioe­co­nom­ic sta­tus (SES) strong­ly pre­dicts in­vest­ment in the pro­gram: we doc­u­ment a 35% SES gap. Al­though, on the one hand, pre­vi­ous ex­pe­ri­ence with the pro­gram can close that gap, we show that fi­nan­cial wor­ries can re­open 2/3 of that gap. Our study fur­ther shows that this is caused by how pover­ty re­al­lo­cates at­ten­tion: fi­nan­cial wor­ries make the poor treat small but im­me­di­ate re­turns as if they were large and large but fu­ture re­turns as if they were small.

The loop: un­der-in­vest­ment in chil­dren’s hu­man cap­i­tal even when poor par­ents would have the means to in­vest.

Break­ing the loop: Un­der­stand­ing par­ent’s de­ci­sion-mak­ing and how pover­ty re­al­lo­cates at­ten­tion can in­form poli­cies that change the choice ar­chi­tec­ture, e.g. by mak­ing large fu­ture re­turns top-of-mind.

Re­search Team

Guilherme Lichand

UZH

More Infos

Prof. Dr. Eric Bettinger

University of Stanford

Nina Cunha

FHI 360

Ricardo Madeira

Universidade de São Paulo