All too often, the working poor are unfairly put down as miscreants, reprobates, and degenerates that impede our otherwise thriving Western society. The poor are first marginalized as defective, inadequate and flawed consumers, and then stigmatized for not participating in socially relevant consumer practices. Recent global economic downturns serve as a key source to a greater diversity in the poverty experience. Research suggests that these plights have precipitated the advent of the nouveaux pauvres (middle-class consumers whose social and cultural capital has decreased) and the working poor(consumers that work yet fail to pull above the poverty line or make ends meet) (Hamilton, Piacentini, Banister, et al., 2014).
This article aims to dissuade readers from typecasting the working poor as apathetic and incapable. Specifically, insights from behavioral economics are used to explain why the poor are not poor simply by virtue of their bad decisions. Instead, it is suggested that people make bad decisions because they are poor. Together, capitalistic structures at the macro-level and impaired decision-making at the micro-level render the working poor’s consumer behavior all the more faulty and unstable.
At the macro-level, marketing makes the poor even poorer because aggressive campaigns target the poor with a range of products — chiefly cigarettes, alcohol, fast-food, lotteries, pawn shops, casinos, predatory mortgages, fringe-banking schemes, payday loans, rent-to-own and high-interest credit cards. These products are patently crippling to low-income consumers’ health and wealth. Still and all, market forces never cease to ‘slay the slain’. Unlike the poor, the rich have systems such as attractive ‘no-fees’ options, automatic deposits, and reminders that are designed to shelter higher-income consumers from errors. Overall, much less is done by marketers to aggressively campaign positive options such as healthier diets, non-profit services, union banks, and prime-rate lenders to low-income consumers (Bertrand, Mullainathan & Shafir, 2006).
The credit card industry serves as an illustrative example to show the inequity on how low-income as compared to higher-income consumers are treated. A recent report by FRONTLINE and The New York Times cites some shady tactics that the industry uses to incite consumers to take on more debt. A set of code words within the industry’s vernacular follows the insidious theme. Consumers who pay off the full balance on-time are referred to as ‘deadbeats’, whereas low-income consumers that carry monthly debt are called ‘revolvers’. Deadbeats are lost causes, whereas revolvers are cash cows. Revenues are generated by tactics that include hidden fees, default terms, penalty fees and higher rates that are often triggered by marginal errors (e.g., payment that arrives only an hour late; a charge that exceeds the limit by a few dollars) (Bertrand, et al., 2006).
Clearly, the poor become poorer because of manipulative and exploitative marketing tactics. A deeper level of analysis reveals that the working poor are also more likely to fall for these tricks because of impaired decision making perpetuated by the state of poverty itself.
According to Dr. Sendhil Mullainathan, a Professor of Economics at Harvard University, the poor necessarily require higher levels of self-control and restraint. In his book, Scarcity, Dr. Mullainathan explains that scarcity of financial resources affects the poor as they cannot afford to waste a dime never less shell out wads of cash to splurge on non-essential wants. The working poor are constantly trying to stretch their dollar so they can scrape by and fit the bare necessities in their tight budgets.
Dr. Mullainathan explains that in these circumstances, there is a profound psychological dynamic at work called the bandwidth tax. The single-mindedness and tunnelled vision caused by scarcity leads to reduced mental functioning in both fluid intelligence (solving problems and reasoning logically), and executive control (planning and controlling impulses).