Ever wondered how your maid survives on her earnings? Like a billion others across the world, your maid too manages with less than $2 (around Rs90) a day. How would you eat two meals, educate your children, afford a home, fight emergencies and plan for old age? For her, these are everyday questions to grapple with.
But it turns out she does not live hand-to-mouth. She applies a complex combination of financial strategies to keep afloat. It is often hard work, and it can carry high costs—some of which are social and psychological, not just economic. Collecting year-long financial diaries of households in Bangladesh, India and South Africa, Daryl Collins, Jonathan Morduch, Stuart Rutherford and Orlanda Ruthven weave the complexities of the financial lives of the poor into a readable narrative in their book Portfolios of the Poor.
Portfolios of the Poor: Princeton University Press, 282 pages, $29.95 (around Rs1,360).
Developing a balance sheet of households’ assets and liabilities, the authors provide evidence of the sophistication with which poor people manage their finances. Portfolios of the Poor is an insightful work on the psychology of the poor. From joining savings clubs to acting as “money guards” for neighbours, the poor employ complex approaches to access capital.
The diaries of the poor show that not having enough money is not bad, and that not being able to manage whatever money you have is worse. That makes the poor great finance managers, given that they juggle so much with so little money. They make more on some days, less on others and quite often go penniless on many others.
Using real life stories, the authors pay scrupulous attention to last-digit details on how small sums of money are managed creatively. In doing so, they provide quantified evidence of tightly defined economic behaviour over time. Existing data from small anthropological studies and large economic surveys is woefully inadequate in comparison with what Portfolios of the Poor reveals.
The authors found interesting similarities in the manner in which the poor apply solutions across countries. The likes of female deposit collector Jyothi, who looks after the small savings of people in the slums of Vijayawada, are found in Dhaka and Cape Town too. Jyothi collects daily savings, at times a few coins per household, from within the community at an effective interest rate of 30%. High rate of interest notwithstanding, the poor obtain the desired amounts at the desired times.
Understanding how the poor manage their financial lives can be the foundation on which policies for combating poverty can be developed. There are important lessons for planners who often base their anti-poverty strategies on large surveys that give snapshots of the living conditions of the poor. Rarely, if ever, do such strategies take into account how the poor actually live their lives week by week. No wonder, far from removing poverty, it exacerbates the problem.
The authors opine that it is time conversations about fighting poverty are moved away from assumptions and clichés. The boots-on-the-ground evidence collected over a period of six years is not only riveting, but dispels several common notions about the nature of poverty. The fundamental finding that the poor rarely consume every penny of income as soon as it is earned provides evidence that there is more to poverty than meets the eye.
Without doubt, it is a must-read book for planners who rarely visit slums but write cheques for the government’s ambitious anti-poverty programmes. The multilayered portfolios of equity and debt need economic instruments that can help the poor expand their options. The fact that the poor don’t live hand-to-mouth is an interesting entry point.
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