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Too little money, too much borrowing

Poverty may narrow attention in ways that undermine financial choices

2:26pm, November 1, 2012

Scarcity — of money, time, food or anything else — focuses the mind on immediate concerns and discourages taking a broader perspective. This “scarcity mindset” helps to explain why poor people often save too little and borrow too much, and it presents policy makers with an opening to encourage better financial decisions among low-income individuals, a new study concludes.

Some researchers, however, regard these findings as vague and far from ready for policy prime time. They suggest that the study’s lab-based results may have little relevance in the real world. And with a nod toward the recent financial meltdown, some note that inadequate saving by the poor ought to be of less concern than financial recklessness on the part of the wealthy.

When money is scarce, each current expense looms large and draws attention away from less pressing expenses, say psychologist Anuj Shah of the University of Chicago and his colleagues. For instance,

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