Savings Policy and Decision-making in Low-income Households

Guidelines for design and regulation of financial services
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This paper uses empirical research on judgement and decision making for a behavioural analysis of the economic conditions of the poor.

Theories about poverty can typically be categorized as those that regard the behaviour of the poor as calculated adaptations to prevailing circumstances, or those that view them as emanating from a culture of poverty that is rife with deviant values. The paper proposes a third perspective that considers the behavioural patterns of the poor as:

  • Being neither perfectly calculating nor especially deviant;
  • Exhibiting fundamental attitudes and natural proclivities that are similar to other people, but are manifested in more pronounced ways.

This third perspective has implications for regulation and design of financial services for the poor. It implies that the poor are neither irrational nor in need of change. Instead, it is the context in which people function, ranging from financial institutions, benefit programs and the design of default structures to the availability of child care and transportation that needs careful attention and constructive work.

About this Publication

By Mullainathan, S. & Shafir, E.