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The Psychology of Poverty

While the economic and social consequences of poverty are well-documented, policymakers often overlook the psychological impacts of poverty. It is vital to understand this, as those who experience poverty undergo changes in how they feel, think and act. Poverty acts as a self-reinforcing mechanism by increasing mental health problems, altering behaviors and worsening the cognitive functioning of those experiencing it. This makes it harder for individuals to escape poverty, perpetuating its cyclical and seemingly fatalistic nature.

Poverty, Mental Health and Substance Abuse

Poverty significantly impacts mental health, and should not be underestimated. Psychiatric conditions such as depression, anxiety, PTSD, mood disorders and schizophrenia are much more prevalent in areas with high unemployment rates and poverty, with the most drastic effect of poverty being increased rates of suicide.

There is also a strong association between poverty, social exclusion and problematic alcohol use. Individuals who are unemployed and living in poor or insecure housing have higher rates of substance abuse compared to those who are employed, educated and living securely. Substance abuse problems can consume someone suffering from poverty, entrenching them in lifestyles that often result in incarceration, health shock and homelessness.

The consequences of poverty also transcend nationality and ethnicity. Across 43 countries, low incomes uniformly predicted negative psychological states and behavior. These include apathy, decreased levels of trust in communities and governments, antisocial attitudes and mental disparity.

Economic Thinking

Poverty burdens the mind and induces high levels of stress. Stress can impact mental bandwidth, which refers to how much cognitive capacity and executive control one has available. Cognitive capacity allows for complex problem-solving, retaining information and logical reasoning, while executive control determines the ability to focus, shift attention, retain things in memory, multitask and self-monitor. Poverty reduces cognitive capacity and weakens executive control, specifically in abstract thinking, due to the mental burden of financial worries, which hinders problem-solving abilities.

Furthermore, individuals in poverty tend to rely more on automatic thinking versus deliberative thinking. This is less cognitively demanding but also makes individuals less likely to consider all possible outcomes due to restricted mental bandwidth. This means most people living in poverty are only able to deal with one problem at a time, sacrificing and prioritizing only what is immediate and necessary. This is known as the tunneling effect. Tunneling is a state of mind where one can only focus single-mindedly on managing the scarcity at hand, blocking out other sections of life. Tunneling also impacts time-discounting. Impoverished individuals are more likely to lose track of long-term goals or rewards, only paying attention to the most immediate reward. Middle-income and wealthy individuals are more likely to consider future rewards and plan accordingly to obtain those rewards.

Further effects include alteration of behaviorally revealed preferences, including a decreased willingness to take present risks and accept new technologies, policies and assistance that could lead to future benefits. Reluctance to accept new technologies contributes to a paradox where impoverished individuals may avoid the very resources that can aid them.

Cognitive Development

Growing up in poverty can severely undermine cognitive development. At around 3 years old, children in low-income households begin to exhibit cognitive and non-cognitive skill differences from their higher-income peers.

Poverty-induced stress can also lead to impaired cognitive functions, including negative effects on the hippocampal memory system. The consequences of increased cortisol levels due to poverty show up in diseases such as Cushing’s and Alzheimer’s. As the hippocampus is responsible for emotions, motivation and memory, persistent stress impairs decision-making abilities. It perpetuates behavioral patterns in people living in poverty. This creates generalized behavioral patterns: increased cortisol impairs hippocampal function, forcing people into mental tunnels and changing how they make and view decisions.

Stress also reduces people’s executive control over themselves. This can lead them to become more impulsive. Stress’s chemical effects on the brain, most notably a rise in cortisol, dictate that often the bad decisions made by those who are poor are not due to low levels of intelligence but a result of poverty itself.

Breaking the Cycle

Neither cognitive constraints created by poverty nor poverty itself must be final or condemning. Modern behavioral and social sciences can lead to the creation of new cost-effective interventions, especially through targeting economic behavior.

Targeting Economic Behavior

Understanding behavior and identifying effective interventions is a complex process. Interventions must come after careful diagnosis of what the defined behavioral default is. Examples of nudging interventions include social influence, coinventing products that are easy to use, feedback or reminders, micro-incentives and physical environment cues. Reminders have proven to be a simple and effective solution when employed in the correct circumstances. In Kenya, patients receiving HIV treatments have struggled with taking their medications when needed. After health workers began sending routine text messages reminding them when to take their HIV medication, the percentage of patients taking their drugs increased by 13%.

Breaking the cycle of poverty may require policies that go further than behavioral nudging, especially for those in extreme poverty. In cases of extreme poverty, multifaceted poverty reduction programs are an impactful way to create pro-poor growth.

Multifaceted Poverty Reduction Programs

Multifaceted poverty reduction programs combine several different interventions to create an integrated approach that leads to positive outcomes. Multidimensional issues such as poverty require multidimensional solutions. Multifaceted programs include cash transfers, skills training and food subsidies. These initiatives also provide access to savings, services for physical and mental health and scheduled check-ins with program managers to measure progress. With regards to helping the ultra-poor, these programs are effective. Frequently, these programs prove to be successful in improving food security, physical and mental health, financial inclusion and time use. Also, there are upsides such as increased income and revenues, productive and household assets, political involvement and women’s empowerment.

Looking Ahead

In recognizing the psychological impacts of poverty, there is hope for breaking the cycle and improving the well-being of those affected. By understanding the cognitive and behavioral constraints imposed by poverty, targeted interventions can be developed to address specific challenges. Nudging interventions and multifaceted poverty reduction programs offer promising avenues for supporting individuals and communities, from providing reminders for medication adherence to comprehensive initiatives that address various dimensions of poverty. By combining these approaches, policymakers and practitioners can make meaningful strides in uplifting those experiencing poverty and promoting long-term positive change.

Andrew Giganti

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