Independent Research and Policy Advocacy

The crucial link between financial access and decision making of the poor

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A new paper by Anandi Mani et al in the August issue of Science has a stunning finding – that the cognitive impact of being poor may be equivalent to as much as 13 IQ points. The authors study shoppers in a New Jersey mall and sugarcane farmers in Tamil Nadu using an experimental design and are able to show that the poor perform consistently worse on standard non-verbal tests of intelligence when “stressed” than the rich. Very interestingly, in the case of the sugarcane farmers, the comparison is not between rich farmers and poor farmers but the same farmer pre-harvest and post-harvest. Before harvest, the farmer is a poorer version of himself (compared to after harvest) because of the liquidity crunch associated with the time before harvest. Think of it as the equivalent of the last few days of the month for the salaried class.

I think this study has very important implications for thinking about how good financial access will look like for the poor and what it will achieve. Too often, as practitioners, we emphasize the “big factors” such as branches, financial literacy, products, regulation and so on and when we think about the impact we have on our customers, we think about mega metrics like income and empowerment. This study tells us that if done well, perhaps the most important impact we will have is to allow customers to free up their “bandwidth” to focus well on the big decisions in their life – their childrens’ education or choosing where to sell their next crop.

Above excerpt is cross-posted from Bindu Ananth’s latest column on the Forbes India Blog. Click here to read the full post.

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