Our society revolves around the individual. Meritocracy is the keyword, which implies everything you own (or owe) is a product of your actions. We adore entrepreneurs like Bill Gates and Elon Musk because they acquired all their wealth through brilliance and hard work. We look down on people who are indebted or homeless because they obviously made the wrong choices in life. However, the meritocratic view is distorted. Being rich is more often than not the result of inheritance. And even if you only look at ‘self-made’ millionaires, chances are they have just had a lot of luck. That is not to say they are not hard workers, they almost always are. But all those people who are also hard workers but did not get lucky are not known to you, although that group is much bigger.
So if you acknowledge that success is largely determined by luck, it makes sense to say that misfortune is determined likewise. Sometimes people fall ill and have to pay large medical bills. They break up or divorce, which can be a big strain on income and wealth. Some people face large expenses due to fires or accidents for which they are not fully insured. This is all bad luck, and it can change a person’s life forever.
But, you might ask, that’s not what this article is about. Indeed, the title asks if being poor makes you less intelligent. Recent research does indeed suggest this, which would make the meritocratic view even more harsh for those who are unlucky, as i’ll explain later.
The answer of science
There have been a number of studies that suggest that being money deprived has a negative effect on your cognitive abilities. This means that when you are occupied with financial problems, the ability to solve your situation, as well as the rest of your thinking, is impaired.
In a paper by Shah, Mullainathan and Eldar a closer look is taken at the relationship between bad choices and poverty. It examines the fact that poor people tend to make bad financial choices, like taking payday loans with massive interest rates. The researchers’ explanation is that poor people are preoccupied by short-term decisions. They can’t think of the future because there are pressing expenditures to be made right now without the means to cover them. This explains why poor people tend to borrow more and save less than they should. This paper also describes an experiment in which a group of people is divided into a ‘rich’ and a ‘poor’ group, both being given a budget accordingly. After this, they had to play games that involved their budget. It became clear that the people with lower budgets under-performed. This shows that having money troubles on your mind has an impact on your performance.
A different paper by Mani, Mullainathan, Shafir and Zhao goes deeper into the question of whether poverty has a measurable effect on intelligence. For this they conducted two experiments. In the first experiment the researchers divided the group in two samples, both consisting of rich and poor people. Both samples were asked to perform a partial IQ test. However, one of the sample groups had to solve a difficult problem concerning personal finances first. In the sample where rich and poor individuals weren’t asked to perform this task beforehand, the results of the IQ test were similar. However, when both the rich and poor were confronted with the financial problem first, the poor significantly under performed on the IQ test. This shows that in this sample, it was not initial intelligence that compromised decision making, but the reminder to their personal financial strain.
The second experiment was conducted in India. Here, a sample of small farmers were surveyed before and after harvesting their crop, sugar canes. Before the harvest, these farmers experienced financial difficulties. They more often had loans and more often had to sell their properties. After the harvest, these problems diminished because their incomes now increased. The researchers then made the farmers perform the same IQ-test as in the aforementioned experiment. They found that the IQ scores of the same farmers was significantly lower before than after the harvest. Financial distress had decreased their IQ score by 13 points! This stands equal to missing a full night of sleep.
Change the debate
These recent findings are very important for the debate on poverty and guilt. It shows that poor people are not stupid, but that their circumstances have a big impact on their ability to decide. This explains why people who have become impoverished often struggle to get out of that situation, and are more prone to make bad choices. Their brain, constraint with the stress and short-term orientation that poverty induces, just doesn’t function properly.
This brings us back to the discussion on luck at the beginning of this article. A lot of people are simply unlucky and fall into poverty. If their brain starts under-performing as a result, it means they are practically stuck. In this situation, it doesn’t help to judge people or claim that it is their own responsibility to get out of the mess they have created. This is not fair to those who faced bad luck or to anyone who made a mistake, because that is something all of us do.
You should not lower benefits or make debt collectors more forceful, since this only puts more stress and strain on poor individuals. It is much more effective to give people proper support. Better treatment would consist of allowing a third party to handle certain financial tasks. This takes a bunch of worries from the person’s mind, which will result in better choices in the future and financial problems being solved earlier. Also, a lot of poverty-related suffering would be solved, which brings major societal benefits. For this, you need more guidance in the ever-more complicated financial world, and more awareness of the financial dangers that can hit anyone.