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Rationality and Poverty

For most of my life, my income has always met my needs. While I always could have used a little more money, I have never suffered for lack of money. Except once!

I was employed part-time as an ESL teacher and I was drawing from my savings to keep the bills paid.

I had also moved from Edmonton, Canada to Brno, Czech Republic. As a city, Edmonton is noted for having a harsh winter. There is a winter in Brno, but it is nowhere near as harsh as Edmonton.

The winter boots I brought from Edmonton fell apart and became useless even in Brno's milder winter. It was time for a new pair, and the Czech shoe store had winter boots for about C$50.

But my mindset was not to spend money. I started thinking that I could probably get through Brno's winter with my regular summer shoes. The bus stop and grocery store were very close to my residence. I could find ways to manage without a lot of winter walking. So my mind was on saving C$50.

What wasn't on my mind was that Brno's winter still creates slippery sidewalks and roads. For those conditions, winter boots provide much better footing than summer shoes—and one slip could have given me a broken arm or leg and my meagre income would have disappeared. When it snows in Brno, it is usually a wet snow, the kind that easily soaks through summer shoes. I'm sure there would have been times of cold wet feet, and this would have increased my chances of colds, flus, or even pneumonia—and again cutting off my meagre income. But my state of poverty had prevented me from seeing all the obvious angles to this supposedly small decision.

Fortunately my girlfriend talked me into buying the boots. I made it through the Brno winter with no injury or illness.

At the time, I thought this was just one of many consumer decisions people make. Reminiscing about that decision ten or so years later, I realized how my decision-making process had been affected by my state of poverty. If my finances had been stronger, I would have never considered not buying the winter boots.

Psychologists say there are two states of poverty that result in bad decisions which perpetuate poverty. My winter boots anecdote is a good example of how bad decisions can be made when a fairly rational person is in a state of poverty. This first state of poverty can be cured by having more income.

The second state is that some people in poverty don't have the ability to make good decisions. Even if they had more money, they would still make bad decisions to put them back into poverty. This second state cannot be easily cured.

So we have two states of poverty. If we are to address poverty in a meaningful way, we need to tell the difference between the two. One way would be to implement a system of universal welfare. When this social program is put into place, the first state of poverty disappears: these poor will make fewer bad decisions and will eventually rise above their poverty. This then leaves the remaining poor to belong to the second state. Once we have identified these people, then we can design social programs to really address their mindset.

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