People of different income and status think and act differently. This is not just prejudice; many large-scale studies have found correlations between status, cognitive skills and decision making. While middle- and upperclass children are often better at school than their low-income peers, poorer adults have worse memory skills, and are more likely to make present-focused (often unwise) financial and health decisions.
What comes first, poverty or poor thinking?
It is hard not to jump to conclusions when faced with these findings. However, if we want to approach this with an enlightened mentality, it is vital to remember that the results are correlational and should therefore be interpreted with care. Doubtless, many of the tendencies mentioned above make it even harder for the disadvantaged and their children to carve out a more comfortable life for themselves. Is it simply that people who are genetically disposed to be less intelligent and prudent will always be less successful economically? There is certainly a genetic component to intelligence and other cognitive skills, and this possibility should not be dismissed out of hand. But apart from this (and the fact that more privileged children often receive a longer and better education), recent studies also suggest a more immediate, short-term link.
By evoking states of financial need in an experiment, people’s cognition can be altered and their behaviour changed in ways typically associated with poverty. This can not only teach us a lot about how poverty reinforces itself, but also indicates what needs to be done to level the playing field and help the people concerned lead better lives.
The mind under scarcity
From the vast collection of research on what cognitive and behavioural patterns distinguish poor people from others, two areas seem to have attracted the most attention so far: differences in cognitive abilities like intelligence and memory function, and differences in how financial decisions are made and risk is evaluated.
As we will see, a scarcity of money leads to different, often worse performance in these areas, and there are several ways of tracing the root of these differences back to the state of poverty itself.
Let us begin with short-term differences. In a widely cited (and also criticized) study, researchers asked people of different income levels in a public place in the USA to do a standard IQ task and a cognitive control task, after first giving them imaginary scenarios that were meant to evoke either mild or serious financial worries (e. g. having to make a decision about a car repair). As expected, the poorer 50% of participants were more affected by the highly stressful scenarios than the wealthier 50%: they performed worse on both the intelligence and cognitive control tasks, even though neither had anything to do with money. After exposure to the mildly stressful scenarios, both rich and poor participants performed similarly well. In a second study, the authors tried the same tests with Indian sugarcane farmers, both before and after harvest. In the time after harvest, in which the farmers’ finances were much more solid than before, they performed significantly better on both tests. The researchers made sure that this was not due to a difference in nourishment, and even stress levels could only explain part of the effect.
More than one mechanism
Taking a long-term perspective, negative feelings and high stress are known to have negative effects on cognitive performance and memory. Chronic stress can even change the structure of brain cells and the connections between them, and suppress the growth of new neurons in certain areas.
Beyond this, the authors have the following explanation: Because cognitive capacities in humans are limited and financial worries often ever-present at the back of a person’s mind, cognitive resources are sapped from the task at hand, worsening performance.
This explanation involving cognitive load is reinforced by studies on number memory, financial decisions and learning. An experiment with a slightly different approach randomly assigned participants to “rich” and “poor” conditions in virtual games. This “wealth” took on different forms in each game (number of guesses, number of shots at a target, or time budgets). Participants could choose to borrow “wealth” from future rounds, with or without interest. Even though in most cases, borrowing was not rational and resulted in fewer wins, “poor” participants were more likely to borrow. In one experimental version, helpful previews of future rounds were shown at the bottom of the screen. However, the participants in the “poor” condition failed to benefit from them, while the “rich” did. The authors attribute this to attention capture: in the situation of scarcity, participants only notice the immediate benefits of borrowing and ignore the negative consequences.
Now or never
But unwise borrowing raises another question: does poverty make you generally more focused on solving immanent problems, at the expense of long-term planning? Can this be explained through stress, cognitive load and attention capture alone? A number of studies suggest yet another mechanism of “poor thinking”.
Surely you have heard of the famous marshmallow test before. If a child is presented with a marshmallow and then asked to refrain from eating it for 15 minutes, with the promise of another marshmallow as a reward, what will she do? Will she exercise her self-control and wait for the full reward? Or will she discount the additional reward and skip the waiting time? How large does the additional reward have to be so she will wait?
This experiment also works with adults, and their individual discount rates (the size of the future reward that they will reject in favour of an immediate one) provide an inverse measure of their self-control. Across many studies and countries, this type of self-control has been found to be lower in low-income people. Now self-control is not simply a trait you are born with. Rather, it is an ability that can be practised, but can also become exhausted, requiring a period of relaxation to replenish itself.
The empty cup
This state of exhausted self-control is called ego depletion and depends on how intensely, for how long, and how recently self-control has been used. Self-control in its different forms is important for financial decisions not only because it helps us delay a reward (spending money) until later, when we may need it more, but also because we need it to focus our attention and ignore distractions.
It is pretty obvious that this means that self-control is vital for making sound financial decisions. Unfortunately, people with lower incomes are automatically at a disadvantage here. Having less money means that you have to deny yourself many things you might want (the coffee to go at the train station, or the train ticket for that matter).
At the same time, a low income also means having to prioritize and juggle different expenses to make ends meet, which can sap cognitive resources from morning until night. To make matters worse, stress and ego depletion also make it more likely for us to choose intuitive, familiar courses of action rather than reasoned choices, making it harder to get rid of bad habits. Another possible mechanism at work which does not prominently feature in the research is the possibility that being made to feel disadvantaged or poor could lower one’s self-esteem and self-efficacy (the expectation of achieving one’s goals by taking action) and thus lower the motivation to make an effort.
What to do?
Thus, when doing an IQ task or thinking about an imaginary money problem, a poor person’s self-control is likely to already be somewhat exhausted to begin with, attention may be captured by immediate rewards, and money troubles may be distracting him or her. If he or she is reminded of them by the experiment, so much the worse. The longer one lives under such circumstances, the more noticeable and long-lasting these cognitive deficits become.
So what does this mean? Are wealthier people wiser and cleverer? Obviously, things like stress, high cognitive load and exhausted self-control can happen to anyone and have many causes apart from financial worries. But based on this research, it does seem that poverty provides a constant source of these detrimental effects.
So where do we start? How about the obvious solution: Levelling the playing field by ensuring decent wages and unemployment benefits!
If you are interested in this topic, I also strongly recommend a recent TED talk by Rutger Bregman. And, of course, I always appreciate constructive feedback!