Do Poor People Waste Money More Than Anyone Else?

Ever since I first started working in social housing, there’s been one trope that’s never really gone away.

Poor people waste money.

I was only a week into my first job when I was told that tenants kept spending money on satellite TV and we should ‘stop them’ for their own good.

I’ve heard it again in the past few weeks as millions of low income families receive a cost of living payment designed to help with rising prices, and soaring energy bills. Won’t people just spend it on frivolous stuff like a BBQ, a party or a holiday?

The evidence for this is often informed purely through ‘big TV theory’. This is the belief that most people on low incomes ‘have a bigger TV than I do’.

It was popularised in the quote by the US motivational speaker and (snake oil) salesman Zig Ziglar ‘Rich people have small TVs and big libraries, and poor people have small libraries and big TVs.’

Quotes like these are horrible oversimplifications of complex problems like income inequality – and lead to stigmatization rather than any positive solution.

First of all, let’s acknowledge there is a grain of truth in this thinking. People on limited financial resources crave the same things we all do, and not all those things are good for them. In The Road To Wigan Pier, George Orwell asks a family to list their weekly expenditure and finds half of it goes on “appalling” food high in fats and sugars -at the expense of fruit or vegetables. To use his phrase this is the “peculiar evil” of poverty, when it comes to diet, the less money you have, the less inclined you are to spend it on”good wholesome food”.

However, more generally, there is little evidence that when people are given a cash boost they will waste it.

The charity GiveDirectly has done a lot of work on this, mainly in East Africa. The idea behind it is simple. Poor people know what they need, and if you give them money they can buy it. Poor people don’t need middle men or women to tell them what is a ‘good’ and appropriate use of money.

To test this out researchers From MIT’s Poverty Action Lab did an experiment. They surveyed people in Kenya who received money from GiveDirectly, and a similar group of people who didn’t get money.

Johannes Haushofer, one of the study’s co-authors said “We don’t see people spending money on alcohol and tobacco. Instead we see them investing in their kids’ education, we see them investing in health care. They buy more and better food.” People used the money to buy cows and start businesses. Their kids went hungry less often.

Getting money made people happier, less stressed out.

Why would we think otherwise?

Work from the Joseph Rowntree Foundation has shown us that attitudes towards those on low incomes are often more negative than attitudes toward the ‘rich’.  In a study 69% of participants agreed that ‘there is enough opportunity for virtually everyone to get on in life if they really want to. It comes down to the individual and how much you are motivated.’

This narrative circulates because we scrutinise the apparent life choices of the poor in ways in which we just don’t for the rich. Why have they got the latest trainers and an iPhone?

Across a series of 11 studies involving more than 4,000 participants, Serena Hagerty and Kate Barasz from Harvard Business School found that we tend to believe lower-income people need less than those on higher incomes, and that this in turn restricts our perceptions about what is acceptable for this group to buy.

In one study, participants could help a hypothetical family decide what to buy. Participants who read that the family was on a low income were much less likely to allocate money to “low permissibility” products like a television than those in the high-income condition. And when deciding whether to gift a low-income individual either a $100 food voucher or a $200 electronics voucher, only 25% of participants went for the latter, even though it was worth twice as much.

This helps explain how stigma takes hold – we’re much more willing to scrutinise — or even dictate — how people on lower incomes spend their money compared to those on higher incomes.

It’s an uncomfortable truth that many of us working in the social sector share exactly these same prejudices about poor people as everybody else. Recognising this is the first step to tackling any stigma.

Part of it is because of the demand led, deficit based system we have set up. If a system computes that the less you own the more likely you are to be a problem you’re on the first step to creating stigma. The organisational algorithm predicts that the lower your educational attainment, your income, the more insecure your background, the more likely you are to be a drain on its services.

There is no single silver bullet here to tackling stigma. However we can stop thinking of people as problems to be solved. We can move away from focusing on what’s wrong and designing systems around that.

And we can stop dictating how people spend their money.


Photo by Christine Roy on Unsplash

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