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.