The poor are more likely to make bad economic decisions | Hacker News Reader

The poor are more likely to make bad economic decisions

economist.com

45 pointsdsr1241 comments

My mom, who grew up in a log cabin and had no running water, was very clear to distinguish between "poor" and "broke". In her family, "broke" was a temporary state of being while "poor" was a state of mind. It was OK to be broke because everyone was in those days, but being poor was unacceptable. Broke people made their own soap and patched clothes so that kids could be clean and dressed in school. Poor people didn't bother with either - they'd given up on the idea of things getting better.

This led to a regionally common saying: poor people have poor ways. The idea was that broke people saved up for things they needed, while the poor said "I don't have enough money to pay rent, so I better buy some lottery tickets".

The "broke vs poor" distinction is a good one but many poor people remain so, at least in part, because they gave up on being anything else a long time ago. In a sense, they have accepted their place in the universe and made their peace with it. It takes a lot of energy and discipline to become "not broke". There is another part to the story:

I think many people do not fully appreciate the prejudice faced by people who were born into poverty. Growing up poor marks you with affectations of the underclass that you do not even notice but which everyone else does. These tend to cause people to discount you regardless of your intelligence or work ethic, even if you are no longer poor, because they can tell you were "poor white trash" or similar. Even if you are financially middle-class, you are still treated as low-status individuals across broad parts of society at large in many respects. And they know this. If you look at it from the perspective of someone in poverty, the effort to change your financial position does not come with a concomitant change in social status and respect.

One of the most consistently successful strategies I've seen for people from the underclass to greatly expand their opportunities in life is to carefully and systematically erase any affectations, behaviors, and preferences that mark them as a member of the underclass. As a society we like to believe that intelligence, discipline, and hard work are enough for anyone to "make it" but the reality is that for people born into the underclass you often have to spend a lot of time finding ways around social prejudices as well.

"In a sense, they have accepted their place in the universe and made their peace with it."

WRT that topic, the article misquoted Orwell pretty badly, the comments explain why, and how it relates to serenity vs stress.

Probably the best analogy I can provide for HN, is I have no impact on celebrity news or professional sports. Its not that I'm struggling stressfully with it despite endless failure, I just no longer identify as part of that group. Disenfranchised. I feel serenity about pro sports and celebrity news.

Once you internalize and self identify that you're permanently kicked out of the economic system, perhaps inaccurately, perhaps accurately, arguments about how great the system is and how easy it is to rejoin the grind game and start leveling up, as told by folks who were born on 3rd and think they hit a home run, tend to fall flat.

The social ladder is definitely different from the economic ladder; though often seen together.

You also don't need to climb the social ladder unless you desire to. The social ladder (also depending on which one you are climbing) can lead to matched income poverty unless you're careful, the state in which your spending / debts increase linearly with your income. That one people not born into wealth or high social class often mess up because it's psychological conditioning you have to usually figure out for yourself. Which is very hard.

The classic movie "My Fair Lady" is all about how accent and mannerisms mark social class.

Reminds me of a quote from 'Freakonomics' [1]: "After a New York livery-cab driver named Michael Goldberg was shot in early 2004, it was reported that Mr. Goldberg was in fact an Indian-born Sikh who thought it advantageous to take a Jewish name upon immigrating to New York. Goldberg's decision might have puzzled some people in show business circles, where it is a time-honored tradition to change Jewish names."

[1] http://www.amazon.com/Freakonomics-Economist-Explores-Hidden...

A guy at work traced his family back to the first Millers that immigrated from Germany to the US. When they came to the U.S. they adopted the most American name they knew of at the time. George Washington Miller and Martha Washington Miller. :)

Quite true. I went to elementary through high school in an area where you saw people from a wide range of economic backgrounds. One thing that was a common feature of poorer students is they would show up for class less, take easier classes, rarely bring their book bags, and clustered together. They had the same opportunities as the more well off and could have made something of themselves, but they chose not to.

I was very poor as well, but parents had some foresight. I ended up in a mathematical biology phd program, one of the kids I used to ride the bus with shot two people in a robbery.

Even successful people often regularly get coached on their body language, gestures, and speech tone and cadence. Bill & Hilary Clinton are famous for doing that.

There isn't anyone who cannot get better at this, and successful people recognize that and make significant efforts to improve themselves in this way.

Interesting. I wonder how many people in India change their name in order to appear as a different caste.

I find this topic very interesting and something that comes pretty close to home. I come from an eastern-block immigrant background where capitalism and individualism, ideas that allowed the west to rapidly develop and innovate, were actively suppressed. My parents were a successful part of the intelligentsia in their home country, and despite putting in the hours and working hard, but after successive setbacks, this success didn't translate that well in the west.

I consider both of them wealthy in many areas but at the same time poor by western standards. While I'd rate them highly on individualism, I wouldn't rate them on their ability to capitalise on opportunities. I know many people who made it out of the old eastern block who have been amazingly successful by western standards, and it's puzzled me to no end, why intelligent people such as my parents never made it.

Many possibilities come to mind:

- Making it out alive was in itself a mark of success for them

- Their way of thinking did not adapt to the west's and they got stuck in a "poor" state of mind

- Bad luck

In any case, I can attest, that changing this way of thinking is not an easy task.

I think that, in general, the poker player with a smaller stack just can't afford to be wrong as many times as the one with a bigger one, and that affects their decisions. And in a game of imperfect information, they can err on the side of being cautious (or, in fact, not err at all) and fall behind more and more in the long term.

A person or company with more resources can try a lot of things, and its successes will make it seem like it was making the "right" decisions.

The bat and ball question - total price is $1.10 and price difference is $1.00 - was introduced to me from someone who was studying psychology. I correctly answered him but only because I was trained to very carefully pay attention to the problem and to attempt to verify the answer before submitting it, so saying that the bat is $1.00 and the ball $0.10 would lead to the difference being $0.90 and therefore cannot be correct. This person's area of interest was not economics however. It seems to me like this problem is more closely meant to confuse people, hoping they pick up on a few keywords such as $1.00, $1.10, $0.10, and "difference", and then state the prices as $1.00 and $0.10 because of an assumption in place that most people have and not so much because they are irrational. Maybe you can say that is evidence of irrationality but I don't see it that way because people understand the correct solution and they also are operating on their own assumptions about it.

Yeah, I think that this is irrelevant to the article. It's just a trick question that plays off our fondness for clean, even numbers.

I saw it as a commentary on the foreign advisors sent in to fix everything in the article.

Consider trust WRT poverty. Specific poor individuals remain poor (in part) because of people kinda connected to them, playing them with trick questions and financial "innovation" and manipulating them based on trust. Occasionally westerners come to visit, even less connected, and say "trust me I've got a great idea". Well, trusting non-closely-connected people is how they ended up poor / stuck being poor, so good luck with that.

The analogy is, a nice magazine author from a magazine I trust, wouldn't intentionally try to screw me with a carefully designed trick linear programming question... or would they? I guess they just did, didn't they.

It's a human perceptual problem, and has nothing to do with wealth or status. The book "Thinking Fast and Slow" by Daniel Kahneman goes into some detail about it.

That question (and the survey it's a part of) are usually interpreted to be a measure of impulse control and ability to self monitor.

Sociologists call this "cultural capital". It's hard to gain status if you aren't surrounded by examples of people doing the same, informing you how to improve your lot.

The comments on HN are actually more provoking than this article.

For instance, the author states:

> George Orwell said, “Within certain limits, the less money you have the less you worry.” He was wrong.

by taking out of context the quote and trying to turn it towards his own argument.

One point that did stick out was mothers being prompted to play with their children in ways that help develop and enhance verbal skills. It would be more beneficial to read studies done that show what kind of actions parents can take to help their children go farther than they have; how to break the cycle, as it were.

Some people just suck at this. As crude as it sounds - its true.

Even among my highly educated finance peers...they can deal with complex derivatives but somehow they're unable to budget further than a week. How that is possible...no idea.

Do we entirely rule out the possibility that people who tend to make bad economics decisions are more likely to become poor?

Because the article doesn't even seem to acknowledge this simpliest of explanations.

> For these reasons, some of the simplifying assumptions of economics are not always correct: people do not act in every instance in their long-term self-interest; they do not weigh up all the costs and benefits before taking a decision.

This seems a pretty stupid strawperson statement. Do they seriously think economists believe this at a micro level?

The rest of the article seems to be lacking any sort of substance.

Poverty for a lot of the world is not a choice. In America, we are lucky enough that it does not have to be your only choice if you can make wise decisions: Get an education, avoid drugs, avoid getting pregnant, work hard, spend your money on only the things you need to live.

Who would have thought...

Aren't they poor because they've already made (some) bad economic decisions?

Someone with parents working at a factory goes to school, gets a job at a fast food place while in college, dropped out to work more or maybe just couldn't find work afterwards and gets stuck in a cycle. Without money, things like a flat tire become disasters because now you have to choose between going to work and paying the gas bill to keep hot water on.

It sucks living a year without hot water.

Stuff happens. Flat tire could have been lost cash, doctor appointment, anything $20 or more.

The bigger problem is that once you are down, regardless of whether it is your fault or not, it can be quite possible to get to a point that it becomes impossible to pull yourself out without some help. I kid you not, I've had buyers remorse over spending $.50 to avoid getting the store brand that I didn't like. There simply aren't many choices left at that point.

growing up poor, its a series of bad habits that keep someone/a family down. i know people who are constantly in one disaster to the next, "my car broke down", "doctors appointment" etc etc.

this is a common justification for "its not me, its being poor", but its because many people only plan ahead at best to the line. if something gets in the way, they dont make that line and blame what ever stopped them instead of changing the bad habit of planning up to the line.

i had to yell at someone in my family just recently, they said 'I dont need that, i only need this much' and i exclaimed "you idiot, do you know the future? you dont know what you will need or what will happen. if something else comes up your f*.'

another one is people simply JUST DO NOT MAKE CALCULATIONS. i cant tell you how many people have no idea in the world how much they spend on food, entertainment, transportation, etc on a monthly basis. even worse, how much all of their debts and moneys (cash, savings, retirement, etc) add up to, let alone what it was last year or the year before.

Not at all. You can be born into poverty, or live in a place that is destitute of resources, so your ability to make good economic choices is severely limited. Especially of those born into poverty, whether in a rich country or poor, it's not like you're choosing where to be born.

> or live in a place that is destitute of resources

Or worse: live in a place with lots of valuable resources: https://en.wikipedia.org/wiki/Resource_curse

http://www.slate.com/articles/business/moneybox/2013/09/pove...

Take from it what you will. One thing is for sure, it definitely can become an endless cycle once those 2 events(bad decision(s) and poverty) happen within a small time frame. For me personally, having a guilt-inducing high-salaried SF tech job gives me the peace of mind of not worrying about money; allowing me to read all kinds of articles/comments on topics like this, as well as financial & nutritional material - which I assume lead to better decisions for me & my family.

> ... allowing me to read all kinds of articles/comments on topics like this, as well as financial & nutritional material - which I assume lead to better decisions for me & my family.

It may just be wording, but I'm going to pick out the word "assume" from your sentence above.

I found for me that keeping logs and planning my future off of past metrics greatly helps in making better decisions. If you don't have a way of measuring what has worked, and wind up assuming, you may face a harder time in planning which directions to go, and which actions to take.

I do applaud your interest in finances and nutrition. Just make sure your reading is paying off and is worth while by keeping track of what works for you.

Why do you feel guilty about having a good job?

That is a long story.

But in short, I was just an average gamer/jpop/anime fan like all my college friends. We all fantasied about getting to Capcom & SquareSoft. A lot of them worked at places like Gamestop, from there a few ended up making connections to get into Namco and SONY as beta-testers. I wanted that too but my parents drilled it into my head that I must go to school first. I ended up getting a BSCS hoping it would help me get into beta-testing. From here, a series[1] of events happened that I don't necessarily believe I earned. I was just at the right place at the right time and it led me to the tech scene of the bay area. None of other college friends were able to stay in the gaming scene; layoffs took 'em out and they lost their connections to get back in. I run into them from time to time. They either work at a gas-station or unloading trucks for major grocery store chains.

1. https://news.ycombinator.com/item?id=8245217

I didn't do anything amazing to get that job in at&t in 2001, stepping over way-more-qualified people who just got laid off in the dotcom meltdown, other than knowing the right guy at the right time. I didn't do anything special to get my 4 bedroom house other than the economy was giving away houses around 2003 and AT&T was a big enough name for them to give me a house. I had no business expecting Pixar to call me when they have a huge[2] stack of resumes touting superior trained digital artists and that Pixar event changed my whole life. I still have the email. That Pixar recruiter has no idea the energy & hope she sparked in me; how it's immensely benefited my family as a result. I thought if I could get Pixar to look at me, I could do anything. I refinanced my house to take all the equity out so I could pay for my soon-to-be wife's nursing school. A few months later, 2007 happened and everyone else lost their equity and/or house. I still had mine sitting in the bank. When it came time for a private school payment for the nursing program, it was going to be like 40k-50k or something, instead my wife somehow got into a public college program. Over 900 people apply and they only take 40. She got it. That ended up only costing like 6k. I have plenty of money left over, then some kind of law was passed and I was notified that I could refinance my underwater-interestOnly house loan. So now I pay less on my mortgage and it's a 30-year fixed paying principle+interest.

At the end of the day, I just like computers & gaming like all my friends... but somehow I'm the only one with a crazy salary, a job I love, a house, etc. Money & opportunity just fall out of the sky for me. btw, this is why I play the lottery. I figure enough crazy things have happened in my life that I might actually win.

2. ">>It’s perhaps no wonder, then, that the interview process is harsh. With an estimated 45,000 applications received for each new position, only a chosen few make it." --- http://www.telegraph.co.uk/culture/film/10144531/Monsters-Un...

Please read this Wikipedia article that seems to have been written about you: http://en.wikipedia.org/wiki/Impostor_syndrome

I don't think those companies are throwing money at you just because they think you're a swell guy with a rabbit's foot. Give yourself a little credit, would you? :-)

I like to think that I deserve my luck, and that my friends who don't have it deserve it too. They just don't have it (yet). The world did not change but this way I feel beter about it.

Actually I believe every one deserves my luck in life! And I am happy that you have it!

I didn't read anything here that indicates that you don't deserve what you have.

Your statement implies that a child growing up in the favela can merely decide their way out of it.

LOL, nice way of thinking! Problem solved then! Poor beggar kids in india are beggars because they made bad decisions, while rich indian boys in Harvard are in Harvard because they made good economic decisions!!! (Oh dear, oh dear..)

Nope, luck is a thing.

https://en.wikipedia.org/wiki/Fundamental_attribution_error

There are certainly other ways to become or stay poor - being born and raised in poor environments, difficult family, bad education for starters.

And you can start out fine and then become poor through circumstance.

Illness is an obvious one. If you've got 1 year of savings, and are severely ill for 2 years, you're going to have a rough financial time.

Even products like income protection insurance will eventually stop paying out for things like severe depression.

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