Paper

How do the Poor Deal with Risk? Lessons from Portfolios of the Poor: How the World's Poor Live on $2 a Day

Understanding risk management strategies of poor households

This brief examines the ways in which poor households manage risks. It is based on the financial diaries research outlined in the Portfolios of the Poor: How the World'’s Poor Live on $2 a Day.

The brief outlines formal and informal risk management tools of poor households in Bangladesh, India and South Africa. Findings include:

  • Illness affected 50 percent of diary households in Bangladesh and 42 percent of diary households in India;
  • Most diary households in South Africa had to access financing to pay for a funeral;
  • Most diary households in South Africa had at least one funeral insurance scheme of some kind;
  • Diary families spent an average of three percent of gross monthly income for their funeral coverage instruments;
  • Formal funeral plans complemented rather than displaced traditional burial societies.

The brief suggests providing partial coverage schemes, modifying product design to be more in tune with poor people’'s needs and the provision of financial devices such as savings and loan accounts to help poor household deal with risk.

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