Money-Managing on 78 Cents a Day: A Field Report
For those of us who don’t have to do it, it is hard to imagine what it is like to live on so small an income. The chances of moving out of poverty depend, we assume, either on international charity or on incorporation into the globalized economy. The hottest public debates in world poverty, therefore, are those about aid flows and debt forgiveness, and about the virtues and vices of globalization. Discussion of what the poor might do for themselves is less often heard.
Suppose that your household income indeed averaged $2 or less a day per head. How do you budget? How do you make sure there is something to eat and drink every day, and not just on the days you earn? (One of the least-remarked-on problems of living on $2 a day is that you don’t literally get that amount each day. The $2 a day is just an average over time.)
Consider Hamid and Khadeja. The couple married in a poor coastal village of Bangladesh. After their first child was born, they gave up rural life and moved, as so many hundreds of thousands have done before them, to the capital city, Dhaka, where they settled in a slum. Hamid eventually got taken on as a reserve driver of a motorized rickshaw, while Khadeja stayed home to run the household, raise their child, and earn a little from taking in sewing work. Home was one of a strip of small rooms with cement block walls and a tin roof, with a toilet and kitchen space shared by the eight families that lived there.
In an average month Hamid and Khadeja lived on the equivalent of $70, almost all of it earned by Hamid, whose incomes arrived in unpredictable daily amounts that varied according to whether he got work that day, and if he did get work, how many hours he was allowed to keep his vehicle, and how often it broke down. A fifth of the $70 was spent on rent, and much of the rest went toward the most basic necessities of life – food and the means to prepare it. their income
– an uncertain 78 cents per person per day – put them among the poor of bangladesh, though not among the very poorest. By global standards they would fall into the bottom two-fifths of the world’s income distribution tables.
You wouldn’t expect them to have much of a financial life. Yet their year-end household balance sheet shows that Hamid and Khadeja, as part of their struggle to survive, within their slim means, were active money managers. Far from living hand-to-mouth, they had built up reserves in six different financial instruments, ranging from $2 kept at home for minor day-to-day shortfalls to $30 sent for safe-keeping to his parents, $40 lent out to a relative, and $76 in a life insurance savings policy. Hamid also made sure he always had $2 in his pocket to deal with anything else that might befall him on the road.
In addition to saving, borrowing, and repaying money, Hamid and Khadeja, like nearly all poor households, also saved, borrowed, and repaid in kind. Khadeja, sharing a crude kitchen with seven other wives, would often swap small amounts of rice or lentils or salt with her neighbors. Virtually all of the rural bangladeshi households followed the well-established tradition of musti chaul – of keeping back one fistful of dry rice each time a meal was cooked, to hold against lean times, to have ready when a beggar called, or to donate to the mosque or temple when called on to do so.
Hamid and Khadeja kept track of their financial transactions in their heads, but their records were accurate. When we asked how they managed to do this when so many transactions were ongoing, Khadeja said, “We talk about it all the time, and that fixes it in our memories.” One of their neighbors remarked, “these things are important – they keep you awake at night.”
In our book we were struck by two thoughts that changed our perspective on world poverty, and on the potential for markets to respond to the needs of poor households.
First, we came to see that money management is, for the poor, a fundamental part of everyday life.
Second, we saw that poor households are frustrated by the poor quality – above all the poor reliability – of the instruments that they use to manage their meager incomes. If poor households enjoyed assured access to a handful of better financial tools, their chances of improving their lives would surely be much higher.
This runs against common assumptions about poor families. It requires that we rethink our ideas about banks and banking. Some of that rethinking has already started through the global “microfinance” movement, but there is further to travel. Our findings point to new opportunities for philanthropists and governments seeking to create social and economic change, and for businesses seeking to expand markets.
Excerpt from Portfolios of the Poor: How the World’s Poor Live on $2 a Day by Daryl Collins, Jonathan Morduch, Stuart Rutherford, and Orlanda Ruthven, published by Princeton University Press, 2009. Adapted with permission of the publisher. For their research, the authors worked in Bangladesh, India, and South Africa with more than 250 poor households who kept financial diaries tracking their money-managing habits. (See www.press.princeton.edu/titles/8884.html)