NEW YORK, UNITED STATES, April 29 - Financial diaries research in Bangladesh, India and South Africa intimately examines the financial “portfolios” of poor households and finds that they lead surprisingly sophisticated financial lives. A panel discussion followed by a book signing and wine and cheese reception. Thursday, May 7th, 6 – 8 pm NYU Law School, Lipton Hall.
Billions of people around the world live on less than $2 a day—an amount most of us could likely dig out of our couch cushions. It’s hard to imagine what it would be like to scrape by on so small an income, much less prosper. Yet despite widespread global poverty, little systematic research has been conducted on the fundamental question of how the poor manage their money.
A new book, co-authored by Daryl Collins, a PhD student at the Robert F. Wagner Graduate School of Public Service, and Jonathan Morduch, policy and economics professor at the Wagner School and managing director of the Financial Access Initiative tackles this basic question. Portfolios of the Poor: How the World’s Poor Live on $2 a Day is the first in-depth examination of how the world’s poorest households patch together financial lives. The book shows that they do so with surprising sophistication and complexity, refuting commonly-held assumptions about the poor.
Collins, Morduch and their co-authors, Stuart Rutherford and Orlanda Ruthven, were frustrated by existing empirical approaches, and so set out to create their own mixed-research method that would capture the richness and complexity of poor people’s financial lives, while being systematic enough in its data collection to prevent being dismissed as a set of mere anecdotes. It focused on collecting data on the range of financial instruments that poor households used, trying to tease out the trajectory of every penny that went through financial manipulation, and find out why households made the choices they did. Rutherford started by spending a year reporting on the lives of villagers and slum dwellers in Bangladesh, making biweekly visits to specific households and recording “diaries” that tracked penny by penny how those households managed their money. Ruthven continued the work in India, and Collins greatly expanded the approach in South Africa.
Overall, researchers worked with 300 urban and rural households in Bangladesh, India and South Africa at various times between 1999 and 2005. The stories and data they collected offer new thinking about how the world’s poorest communities manage their financial lives. The financial diaries show that the poor are not living hand-to-mouth, but that most of them save and borrow with an eye to the future, and maintain complex financial lives because they are poor, not in spite of it.
The financial diaries also demonstrate that being poor isn’t just about living on one or two dollars a day, but about dealing with the fact that these are just averages—on some days you have more and some days much less. Coping with the ups and downs is an overlooked but fundamental challenge for poor households. And above all, it becomes clear that the real tragedy of poverty is not just that the poor have limited resources, but that they lack the financial tools to squeeze all they can from what they have.
While the global microfinance movement celebrates widening access to loans to promote small business, the financial diaries show that households seek loans for a wide range of purposes. A sample who are customers of the Nobel Prize winning Grameen Bank divert half of their “production” loans to things like putting food on the table, paying down debt, and meeting other pressing consumption needs. The diaries also reveal how households create self-discipline devices (like rule-bound savings clubs) to protect their savings strategies in the face of temptation, an insight that aligns with new research at the overlap of psychology and economics.
Understanding how the poor manage their financial lives provides the foundation upon which to build policy agendas that meaningfully confront persistent inequalities. The insights gained from the financial diaries also provide a starting point for imagining new business models that serve those living on one or two dollars a day.