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Blogging for Change Blogging For Change
by Jesse Campbell on January 27, 2014

Low-income housing: does money management matter if you're poor?

Late last year one woman attempted to explain how poverty impacted her financial decision-making. The resulting piece, Why I Make Terrible Decisions, outlines the thought process of Linda Tirado, a mother and full time student working two jobs. She’s poor and, as she puts it, she “will never not be poor.”

I make a lot of poor financial decisions. None of them matter, in the long term. (T)he thing holding me back isn't that I blow five bucks at Wendy's. It's that now that I have proven that I am a Poor Person that is all that I am or ever will be. It is not worth it to me to live a bleak life devoid of small pleasures so that one day I can make a single large purchase. I will never have large pleasures to hold on to.

Here at MMI, our mission is “Improving lives through financial education.” But are there lives that can’t be improved by financial education? Are there circumstances in which knowing how to handle money doesn’t make any difference at all to a person’s circumstances?

Yes and no.

Financial education is an additive. It’s a tool in the toolbox. But just like any tool, there are problems it can be used to fix and there are problems it can’t help you with at all. It’s a screwdriver. It’s important. It's useful. But it’s limited.

What's a "terrible" decision?

Tirado makes the point that some of her decisions may seem “terrible” to you and me, but they represent the best choices for her and her unique set of needs at that moment. Those decisions seem terrible because they tend to sacrifice long-term well-being (physical and financial) for short-term rewards, and we’re conditioned to generally believe that patience is a virtue and a signifier of self-control and success.

There was a fairly well-known study conducted at Stanford University in the late ‘60s. Using small treats, researchers tested children to see what they would do when presented with an immediate reward and then offered a larger reward if they simply waited. By following-up with the children over time, researchers found that the children who waited for better rewards tended to do better in life (they were healthier, scored better on tests, etc.).

The outcomes of that study ran parallel to the existing assumption that it’s always preferable (nobler, smarter) to wait for the better thing. But, as Tirado states, “Poverty cuts off your long-term brain.”

Moreover, waiting might not make sense in all circumstances. As blogger Andrew Golis writes, “Maybe the psychology of poverty, which can seem so self-defeating and irrational, is actually the most rational response to a world of chaos and unpredictable outcomes.” When circumstances conspire to make long-term planning unfeasible, then don’t the seemingly “short-sighted” choices of those in poverty make significantly more sense?

Can financial education help?

So then it comes back to financial education and the tools of smart money management. If you live a life, like Tirado, where “planning isn’t in the mix” then is there any point to having financial education in that mix either?

The answer is up to you. For some – those living life penny by penny, with hardly a moment to think or breathe – there’s simply no room and no reason for financial education. For them it’s about survival and their “terrible” decisions are the ones they feel they need to make to get by. To admonish them for their choices or to offer unfeasible alternatives is a disservice. As Tressie McMillan Cottom writes, “You have no idea what you would do if you were poor until you are poor. And not intermittently poor or formerly not-poor, but born poor, expected to be poor and treated by bureaucracies, gatekeepers and well-meaning, respectable authorities as inherently poor.”

None of that, however, is to say that financial education cannot help those in poverty – even those in the most dire straits. It’s simply to acknowledge that financial education is limited. It is a tool, not a magic wand, and for every individual it can help to achieve a dream, there is another who does not need or cannot use that tool – not now.

But it’s important to know that access to that tool is here and available when you do need it. Even if you’re not sure if your problems can be solved with counseling or education, those services are available and free. So take advantage of them.

Understanding how to handle the money you do have gives you the best chance to get where you want to go. It puts more control into your hands. It doesn’t solve every problem, but it does help you understand your problems and moves you towards a solution. It can help, and sometimes that’s the best we can do.

Posted in:  Financial Crisis, Education


Ann Simms says:
April 07, 2014

Define poor... I think to save is wise and to invest in wiser.

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March 05, 2014

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Chris says:
January 30, 2014

Excellent article and a fantastic follow up to the original piece. Financial advice often seems best suited to those who don't really need it. Information about retirement savings, reducing insurance costs and finding the best credit card for your needs likely don't apply to those struggling the most. But not all who diet will become super models, nor do they want to be. Eating better and moving more, however, will always make you feel better. Creating a budget will not help everyone complete a full financial turnaround. I would like to think that it's always possible to improve one's money management skills, relative their current situation. Everyone will not become Warren Buffett through budgeting, but there's always someway to improve.

Darlene says:
January 30, 2014

Agreed! And having that tool can help if a break comes along. Sometimes, the break comes from very unexpected sources. I was recently laid off of a job where I had a 401K. All "conventional wisdom" says that one should never raid one's 401K. But in my situation, "raiding it" enabled me to pay off every debt I had except for three essentials - my mortgage, my car note, and my student loan. And *that* enabled me to take a job that pays $3,000/year less, but which is closer to home, offers better benefits, plus it is more stable than the former job and there will be raises. Thus, in the end, being laid off was a boon as I am now in a better situation. The decision to raid the 401K was a tough one, but these are the types of decisions which sometimes have to be made - and I would not have been able to figure this out if I had not had the financial education which MMI has helped me with. (I consider myself to be lower middle class, but I know that a major disruption could quickly make me fall into the poor category.) It's always worthwhile to have that 'screwdriver' - you never know when you just might be able to use it!

Devoted Parent says:
January 30, 2014

Great article. It reminds of the times when I'm out with the kids during the summer and they ask for ice cream or lemonade or some treat. I ask myself "Do I save the money for a weekend at a water park? or Do I give in to their present desire? Many times I have concluded that saving it for the water park, would make them happy only for that day of, but not so happy today when I deny the ice cream and for the several weeks that follow. Whereas I can keep them happy for several days with ice cream- skipping the water park. Once you think about that, there is no question, a parent will choose to keep their kids happy... I would love to take them to the water park too- and so would they, but when you don't make enough, these are the everyday choices us parents are faced with. I can see myself using the "money management tool" if I were to come across an unexpected lump sum of money. Otherwise, I know I'm getting my income of $800 this coming Friday and have to stretch it for 2 weeks. (Darn, rent is due in 2 days- there that goes)

Fred Canfly says:
August 31, 2014

I can completely understand where Tirado is coming from! I was there several years ago, and joined the military just to get out of that situation. My career has ended, but my memories from my poor days stick with me to this day. Her comments come from a place of no hope and a belief that things will not and can not get better. I believe that is not completely true and that there is always something you can do. I have recently started a blog on the situation combining the advice from the financial world with how to keep your sanity in the world of being broke. Tirado rightfully states that that hamburger at Wendy's is not the problem - it's actually a way to keep sanity in an insane situation. The problem is that pretty much all of the financial advice on the internet is geared toward those that already have money. If you are broke and can't pay your bills, then you are not worth our time. That is something I am hoping to change.

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March 30, 2014

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Kayla says:
January 30, 2014

Linda makes sense to me, because I've been in that same situation for years. It is impossible to save for long-term goals, because the only comfort you have on a weekly basis after suffering through often-demeaning (low pay and difficult) work is meager treats---which give you an instant boost of happiness (like that morning Dunkin Donuts coffee). Then you have families who literally have no savings at all (we are currently in that boat) despite the stark realization that you need savings for car repairs and emergencies. But since we can barely afford food or necessities right now, it makes it impossible to save. Yes, we may get pizza once a month, and that might be our only splurge. We can't afford going to the movies, going on vacation, buying new toys or games, so our only treat in life is food. Sacrificing even that would be demoralizing and make life extremely depressing. So what do I give the children when we want to have a fun weekend? We might buy a candy bar or ice cream. That is the only "fun" we can afford and if we were to save that money instead, it would take a very, very long time before it would be useful for anything. Only the rich can save and invest, which just makes them richer.

Kim says:
January 31, 2014

Devoted Parent: something to think about...when my kids were little and when I had the spare change, they had choices to set the money aside for that immediate want (the ice cream today) or to save it for a bigger ticket item (the water park). Sometimes the spare change was spent right away, other times it went in to the big pickle jar on the counter which had pictures of places they'd like to visit. My kids had to agree on spending or saving so that it wasn't just my natural-born saver who was contributing to the savings. It didn't take them long to fall in to a rhythm of saving one time and spending another. They saved for a memorable zoo trip and are good financial planners to this day.

P J Johnson says:
January 30, 2014

I am in my 50's and make 6 figures a year, but I am still "poor". It's all relative, it's about how you manage your money. After the death of my husband back in 2010, I found myself with a mountain of debt. So, I made the decision to close all of my credit cards (8 in total) and signed up with MMI. This year in March of 2014, I will be able to completely pay off my credit card debt. I refuse to continue to be "poor". As long as you are alive and willing, it's never to late to turn your finances around.

Philip Permenter says:
January 30, 2014

I guess what your are saying is yes education helps but not for the person who can not put who is convinced they will be in poverty all their life regardless of what they do. How do we change this mentality. I lived around poverty in Zambia, Africa for 8 years and even took in orphans. This limit to our thinking must somehow be changed. These people in general have no hope! I learned from personal experience that giving out money does not help. I guess we are talking about a complicated philosophy of life? I really have done much soul searching and thinking and trying different things to help people in this situation. I am not sure how much difference I have really made. The article is good.

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