Have you ever taken on additional shifts at work for some extra cash and then failed an exam because you didn’t study enough? Bought a phone for $0 to save money then only to end up stuck in a three-year contract? Signed up for a high-interest credit card without really reading the fine print because it meant immediate access to funds?
This may be how are brains are wired to operate, according to researchers who have been studying the cognitive mechanisms behind scarcity. They say when we’re under financial stress and focused on solving a problem related to money, our brains tend to tune out other information and hinder our ability to do unrelated tasks. And it may explain why some people who are living in poverty can’t seem to get themselves out of it.
About 4.8 million Canadians, including 1.2 million children, live below the poverty line, according to the latest numbers from Statistics Canada. But behavioural science researchers say lifting people out of the cycle of poverty is not as impossible as we may think, if policy-makers are willing to grasp that the stress of scarcity can alter how you think and react to simple tasks .
“Let’s say you’re short on income or you’re thinking about financial trouble or a cost that you have to pay, your performance on other irrelevant cognitive tasks suffer, so it’s kind of like a trade-off,” Jiaying Zhao, a professor of psychology at the University of British Columbia who has been studying the scarcity mindset, told VICE Money. “As you focus on one thing, your performance on other things suffers.”
According to Zhao, financial stress challenges the cognitive system — budgeting with a limited amount of money, for example, makes you so focused on the problem at hand that you end up overlooking other useful information or forgetting to do things in the future that could help you with your money problems.
In a recent study, Zhao and co-author Brandon Tomm asked participants to order food off a menu and randomly assigned them budgets of either $20 or $100. The menu also came with calorie information and the option of an 18-percent student discount, written at the bottom.
The researchers used eye tracking to measure attention, and found that with $20, participants zeroed in on prices.
“They didn’t even look at the dishes and calories, and they didn’t even look at the discount,” said Zhao. “They’re doing budgeting — pretty sophisticated math in their heads. And the rich are looking all over the place, and they look more at the discount… This irony of scarcity is is that you focus so heavily on prices, on budgets, that you actually neglect things that could help you.”
The study builds on a 2013 paper Zhao co-authored with renowned Harvard behavioural economist Sendhil Mullaithanan that produced similar results. That study also suggested that poor people end up spending so much energy figuring out how to pay their bills that they are left with less mental capacity to think about how to improve their overall condition in the long-run, leaving them stuck in their current financial situation or even making it worse.
In one of their studies, they approached 400 people at a mall and gave them two financial scenarios. One was easy and one was hard. While the participants contemplated the solution to the scenario, they were asked to take puzzle-based IQ tests and complete tasks that measured their attention. The researchers found that the ‘poorer’ participants — those whose household income was under $70,000 a year — performed worse on tests when they were given the harder scenario; their IQ was 13 points lower in this scenario than when they were thinking about the easy one. They had found, essentially, that thinking the financial stress of not having money reduced cognitive performance among poor people.
Experts say that when determining policies for poverty reduction, the government should seriously consider that the stress of being poor can actually perpetuate the cycle of poverty, because of our cognitive limitations.
Zhao has in fact given B.C.’s provincial government a list of recommendations, including simplifying forms, setting up reminders, and automating procedures and applications, for things like welfare, which currently requires filling out mountains of paperwork, a process that many people, especially the poor, eventually give up on.
To its credit, Employment and Social Development Canada has taken the research of these behavioural theorists into consideration. For example, the department uses nudges to increase interest in its employment search portal and sends email reminders to encourage people to finish their registration. In Ontario, the Behavioural Insights Unit — a pilot project by the Ontario government to improve services and outcomes — has worked on a number of different projects like license plate sticker renewals and organ donor registration.
“I think the myth or public perception of poverty is that the poor are poor because they screwed up, because they’re inherently incapable, they lack patience, they don’t have self-control,” Zhao said.
“But what we’re showing is that’s not true because just being poor itself, the context of scarcity, can make you perform worse. If we make things easier, if we alleviate these taxing procedures and burdens, then the people can prosper and get out of this poverty cycle.”