What scarcity means for families we serve & each of us as well

A few months ago,  economists and researchers Sendhil Mullainathan and Eldar Shafir  published Scarcity:  Why Having Too Little Means So Much – a fresh perspective on the causes of poverty that suggests scarcity, a lack of resources like time or money, drastically changes the way people think. Since January is Poverty Awareness Month, this seems like a perfect time to reflect on the psychology of scarcity. 

Scarcity can tax your mind enough to cause a 13 point drop in IQ.

Basically, the authors found that scarcity taxes the mind reducing cognitive capacity (IQ) and executive control (willpower). They call this the “bandwidth tax” and it could be experienced in a momentary situation, such as after a long day at the office, or daily and with no end in sight, as is typical when living in poverty.  

Scarcity also contributes to “tunneling,” an effect where individuals focus exclusively on immediate deadlines, like that the rent is due today or the car needs a repair. That happens because families don’t have a cushion, so there is no slack to cover unexpected financial shocks we all inevitably face and putting out financial fires becomes you primary focus.

This explains why a payday loan can look attractive today when a car repair has captured your absolute attention.  While putting out the fire, there is no bandwidth to foresee the additional problems that could arise in two weeks when the loan is due. Unfortunately, this creates a cycle – borrowing creates a deeper hole in the future. 

The psychology of scarcity is true for people who lack financial resources AND those who lack time resources. 

The same holds true for busy people and time management.  The act of procrastinating on a project can seem like a good idea today, but in a week it can cause panic and a massive reorganization of your schedule to make up for it.

This science of scarcity provides an effective framework to understand the work I’m focused on everyday – which is making sure people have access to information and tools to access the financial products they need to thrive. Our work touches on a few areas: 

But more than this practical framework for our efforts, what got me most excited in this book is the idea that acknowledging a shared experience induced by scarcity can change the conversation about poverty.  The authors describe the commonality between those without enough time and those without enough money – suggesting this can be the beginning of a sort of empathic bridge.   Even though you may not be living in poverty, perhaps you can dial into that experience of scarcity, what it’s like to tunnel to put out an immediate fire and borrow against the future. 

Have you experienced scarcity? Share your story in the comments. 

Featured image from, brain scan image from Reigh LeBlanc via Flickr Creative Commons.

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