Poverty reduces brainpower, it uses up so much mental energy that there is much less brainpower left to address other areas of life, researchers reported in the journal Science.
Consequently, poor people are more prone to making bad decisions and mistakes, which can worsen and prolong their poverty.
The researchers, from Harvard and Princeton universities in the USA, the University of Columbia, Canada, and the University of Warwick, UK, said that their study "presents a unique perspective regarding the causes of persistent poverty".
The state of being poor undermines a person's ability to concentrate properly on the avenues they should follow to improve their standard of living.
The daily struggle to cope with the immediate effects of not having enough money - such as cutting costs, and begging and borrowing to pay bills - has a detrimental effect on cognitive function.
An individual who lives in poverty ends up with fewer "mental resources" to concentrate on complicated, less immediate matters such as job training and education. Poverty robs people of the ability to manage their time.
After performing a number of experiments, the investigators found that financial worries had an immediate negative impact on a poor person's performance in common logic and cognitive tests.
Poverty reduces IQ
People who were overly worried about money problems demonstrated a drop in cognitive function equivalent to a 13-point fall in IQ - a similar effect is seen when a person loses a whole night's sleep.
However, when a poor person's concerns were benign, they performed competently in the tests, said co-author Jiaying Zhao.
"These pressures create a salient concern in the mind and draw mental resources to the problem itself. That means we are unable to focus on other things in life that need our attention.
Previous views of poverty have blamed poverty on personal failings, or an environment that is not conducive to success. We're arguing that the lack of financial resources itself can lead to impaired cognitive function. The very condition of not having enough can actually be a cause of poverty."
Poverty and stress affect cognition differently
The mental burden of poverty is different from the impact of stress, explained Eldar Shafir, who was involved in the study. Stress, which studies have demonstrated can actually encourage good habits, is our response to a range of outside pressures.
This study found that immediate rather than long-term preoccupation with limited resources can be an obstacle to important yet still unrelated tasks. Going on a training course will help in the medium- to long-term prospects of an individual, but will not put food on the table today.
Women attending a skills training program on dairy farming.
Training is a distant priority for many people who live in poverty
Shafir said "Stress itself doesn't predict that people can't perform well - they may do better up to a point. A person in poverty might be at the high part of the performance curve when it comes to a specific task and, in fact, we show that they do well on the problem at hand. But they don't have leftover bandwidth to devote to other tasks. The poor are often highly effective at focusing on and dealing with pressing problems. It's the other tasks where they perform poorly."
The consequences of failing to be on top of other areas of life for a person in a hand-to-mouth existence may loom larger. Shafir said "Late fees tacked on to a forgotten rent payment, a job lost because of poor time-management - these make a tight money situation worse. And as people get poorer, they tend to make difficult and often costly decisions that further perpetuate their hardship."
The mistakes made by a poor person have greater consequences, compared to people higher up the socioeconomic ladder. Shafir explained "If you live in poverty, you're more error prone and errors cost you more dearly - it's hard to find a way out."
In the first set of studies, the investigators chose 400 people at random in a New Jersey shopping mall. Their average income was $70,000. Income ranged from very high to $20,000 per year.
The participants were asked to solve fictitious financial scenarios, for example, if there was suddenly something wrong with their car, would they repair it by paying in full, borrowing the money, or postpone the repairs. They were presented with either a "hard" or "easy" scenario - the repair would cost $1,500 or $150.
The subjects performed common cognition and fluid-intelligence tests while considering these scenarios.
The researchers divided the participants into two groups, the "poor" or "rich" group, according to their income.
The study showed that:
- In the "easy" scenarios the poor group performed as well as the rich group in the tests.
- In the "hard" scenarios the difference was evident. Those in the poor group performed considerably worse on both cognitive tests, while the better-off participants were "unfazed".
In the second set of studies, 464 sugarcane farmers in India took part. For sugarcane farmers, the annual harvest represents 60% of their income. These farmers are usually well off just after the harvest, and poor immediately before it.
The farmers were given the same scenarios and tests. The researchers found that they performed far worse before the harvest than after it.
The team found that the effect of poverty on cognition is associated with the general influence of "scarcity". By scarcity, they refer to lack of time, money, social ties and even calories that poor people face when trying to cope.
It is not about being poor, it's about living in poverty
Zhao explained that scarcity uses up "mental bandwidth" that should be going towards other concerns in life.
"These findings fit in with our story of how scarcity captures attention. It consumes your mental bandwidth. Just asking a poor person to think about hypothetical financial problems reduces mental bandwidth. This is an acute, immediate impact, and has implications for scarcity of resources of any kind.
We documented similar effects among people who are not otherwise poor, but on whom we imposed scarce resources. It's not about being a poor person - it's about living in poverty."
When you are poor you cannot decide that you have had enough and you are not going to be poor any more. Deciding that you won't give your kids dinner or pay the rent is not an option, Shafir added. It is not a choice, it is a situation in which the individual's options are extremely limited - not something found in other types of scarcity.
Services for poor people should be more scarcity proof
Services for the poor should bear in mind the burden and obstacle that poverty places on an individual's time and mental resources, the researchers suggest. Aid forms should be simpler; there should be more guidance on how to receive assistance and training.
Training programs should be set up in a way that take into account the person's limited time. Unexpected absences in training programs should be more forgiving, so that when a person stumbles they have a chance to get up again.Shafir said "You want to design a context that is more scarcity proof". He pointed out that higher-income people have access to regular support in their daily lives, including babysitters, cleaners, personal assistants, computers, etc.
"There's very little you can do with time to get more money, but a lot you can do with money to get more time. The poor, who our research suggests are bound to make more mistakes and pay more dearly for errors, inhabit contexts often not designed to help."
Poverty affects our genes - researchers from the University of Gothenburg, Sweden, found that poverty has an effect on people's genes which may contribute to their immune response.A team from Rutgers University found that GAD (generalized anxiety disorder) rates are high among poor mothers, not because they are suffering from a psychiatric disorder, but simply because they live in poverty.