• 05.22.14

The Cycle Of Poverty Is Psychological, Not Just Financial

Being poor makes you stressed, which prevents you from thinking long term.

The Cycle Of Poverty Is Psychological, Not Just Financial
[Image: Abstract via Shutterstock]

When thinking about those who are less fortunate, it’s often said that you should put yourself in someone else’s shoes.


But research suggests that could be difficult, because being poor affects not only a person’s circumstances and environment, but also, more fundamentally, the way they think and make decisions. In a new review paper in the journal Science, part of a special issue on the “science of inequality,” two researchers detail the psychological cycle created by living in poverty that make it even more difficult to leave.

“A growing body of literature now shows that poverty makes people more stressed,” says Johannes Haushofer, a researcher at MIT’s Poverty Action Lab. “Stress makes people risk-averse, and it makes them more short-sighted, in the sense that they are more likely to make decisions that benefit them sooner than in the long term. That may put a limit on how much you are willing to invest in the future, in terms of health care, education, and so on.”

Haushofer and his colleague, Ernst Fehr at the University of Zurich, review a long list of studies that reveal how this relationship between stress and decision-making affects the poor. Together, the relationship creates a feedback loop that perpetuates the cycle of poverty: Psychologically, not just financially, poor people have trouble taking longer-term risks and investing in their future, and therefore stay poor and more stressed.

To Haushofer, what’s most surprising is not the evidence itself, but how much the evidence contradicts public perceptions about poverty. Many people think the poor are happy living simple and worry-free lives. “That’s just wrong. The data doesn’t bear that out at all,” says Haushofer. Similarly, people often reflexively blame the poor for making bad decisions, but don’t have empathy for their psychological challenges. In reality, the situation of poverty itself wields “enormous power” over the decisions people make, he notes.

While the researchers don’t have answers, they do call for more attention to be paid to improving the stress levels and psychological welfare of the poor as a strategy to tackle poverty itself. “If this feedback loops between poverty, stress, and decision-making exists, then the next thing we want to do obviously is to break it.”

About the author

Jessica Leber is a staff editor and writer for Fast Company's Co.Exist. Previously, she was a business reporter for MIT’s Technology Review and an environmental reporter at ClimateWire.