4 ms·

I'm reminded of one of the stories from "Poor Economics" (Abhijit V. Banerjee and Esther Duflo, ISBN: 978-1-58648-798-0). Consistently, those in poverty (livin

by momojo 2y ago

I'm reminded of one of the stories from "Poor Economics" (Abhijit V. Banerjee and Esther Duflo, ISBN: 978-1-58648-798-0). Consistently, those in poverty (living on < $1 per day) do not simply 'try harder' to save and make better financial decisions by being restricting their impulses. Instead they find clever ways to outwit themselves. One mother in India, intent on accruing $2000 (?) for her daughter's dowry, knew she didn't have the willpower to "just save $200 per year over 10 years", though her annual income was greater than $200. But she had the foresight to take out a $2000 loan from a bank, immediately move it to a saving account, and pay back the bank. The interest on her loan was almost like an extrinsic-motivation fee.

dr_dshiv 2y ago
I think this might be missing information? I don’t understand
- qsantos 2y ago
  The mother forced herself to save by punishing herself if she did not. The $2000 in the saving account was earmarked for the dowry, and she would not touch it. So, she had to save every month to pay back the loan to the bank. The longer she took to do this, the more interest she paid. This is a kind of non-rational trick that some people use to "trick themselves into doing the right thing". This is like paying some random stranger $100 if you do not accomplish some task.
  - eru 2y ago
    Well, some people in rich countries take out a mortgage and buy a house on similar grounds.
    - fireflash38 2y ago
      With the differences of: 1. Immediate use of the home 2. Collateral that can be taken back of the loan isn't repaid 3. Often the collateral gains in value over the duration of the loan 4. The interest rate on the loan is way lower than a personal loan or a credit card.
      - eru 2y ago
        I mostly agree. However, (3) is a bug that's just commonly encountered (hopefully temporarily) in some countries that restrict construction way too much at the moment. One can hope.
- momojo 2y ago
  The mother knew (from experience?) that she did not have the necessary impulse-control, or intrinsic motivation, to save money for such a long-term thing as a dowry. I was really taken by this example because my initial reaction was "just try harder". My first-world perspective has always been "if you failed, its a personal short-coming. You need to become better". This mother's solution is based off a fundamentally different philosophy; "I am not capable of that kind of self-control. I'll modify the environment".
kqr 2y ago
This mirrors things I've read in Gregory's Savage Money. Most people on this website live in cultures where the value system places prestige upon accruing money, so it's easy for us to do so because the incentives line up. In parts of India that's not so. To simplify a little, their value systems places prestige upon spending money on social events/life cycle rituals, so it's easy for them to spend money on e.g. a funeral but significantly harder to hold onto the money. This, in Gregory's view (which I symphathise with) has nothing to do with being rich or poor. The rich in Bastar also spend a lot on life cycle rituals, but they outearn their spending. For the interested, I plan on publishing a review on that book later this month: https://two-wrongs.com/book-review-savage-money.html https://two-wrongs.com/book-review-savage-money.html

by momojo 2y ago

dr_dshiv 2y ago

I think this might be missing information? I don’t understand

qsantos 2y ago
The mother forced herself to save by punishing herself if she did not. The $2000 in the saving account was earmarked for the dowry, and she would not touch it. So, she had to save every month to pay back the loan to the bank. The longer she took to do this, the more interest she paid. This is a kind of non-rational trick that some people use to "trick themselves into doing the right thing". This is like paying some random stranger $100 if you do not accomplish some task.
- eru 2y ago
  Well, some people in rich countries take out a mortgage and buy a house on similar grounds.
  - fireflash38 2y ago
    With the differences of: 1. Immediate use of the home 2. Collateral that can be taken back of the loan isn't repaid 3. Often the collateral gains in value over the duration of the loan 4. The interest rate on the loan is way lower than a personal loan or a credit card.
    - eru 2y ago
      I mostly agree. However, (3) is a bug that's just commonly encountered (hopefully temporarily) in some countries that restrict construction way too much at the moment. One can hope.
momojo 2y ago
The mother knew (from experience?) that she did not have the necessary impulse-control, or intrinsic motivation, to save money for such a long-term thing as a dowry. I was really taken by this example because my initial reaction was "just try harder". My first-world perspective has always been "if you failed, its a personal short-coming. You need to become better". This mother's solution is based off a fundamentally different philosophy; "I am not capable of that kind of self-control. I'll modify the environment".

kqr 2y ago

This mirrors things I've read in Gregory's Savage Money. Most people on this website live in cultures where the value system places prestige upon accruing money, so it's easy for us to do so because the incentives line up. In parts of India that's not so. To simplify a little, their value systems places prestige upon spending money on social events/life cycle rituals, so it's easy for them to spend money on e.g. a funeral but significantly harder to hold onto the money. This, in Gregory's view (which I symphathise with) has nothing to do with being rich or poor. The rich in Bastar also spend a lot on life cycle rituals, but they outearn their spending. For the interested, I plan on publishing a review on that book later this month: https://two-wrongs.com/book-review-savage-money.html https://two-wrongs.com/book-review-savage-money.html