Do You Manage Your Money Like CGAP’s Definition of a “Poor Person?”
Yesterday, I got a tip from a loyal reader:
— caesuras (@caesuras) July 28, 2015
The linked article and accompanying video is from CGAP, the Consultative Group to Assist the Poor, and aims to provide insight into “understanding how and why the poor manage their money.”
Except it reads a lot like how I manage my money. For example, here’s how the article defines the poor-person money habit of “income shaping:”
Poor people often have more than one source of income. But how do they determine what those sources will be? Rather than simply consider the size of the income, they focus on when things pay (the timing).
I read that and thought “yup, me too.” A client that pays regularly is much more valuable to me than a client who pays on an unpredictable schedule, even if the unpredictable client is offering more money. I mean, I’m not about to turn down a high-paying assignment, even if I don’t expect to get the check until four months from now. But to keep my freelancing career going, I have to ensure I have enough clients that pay either weekly or monthly. I need to predict when the majority of my income will arrive.
Choosing to spend most of our time working for regular payments instead of longer-term, riskier investments isn’t just a low-income thing, right? It’s a “most of our incomes” thing. (And yes, I know that these investments are often more profitable than the day-to-day work we take on to get by. We just can’t invest, because we can’t afford to wait for the payoff.)
The video, which I hope you watch, also includes the concept of “spending routines,” which they define as making lower debt payments even though this means paying more in interest over time. Making a lower payment fits into the daily routine and enables poor people to buy the rest of life’s necessities, while making a higher payment does not.
Again, I feel like this is a “me too” thing. This was something I thought about every month, before I started my automatic “put 20 percent of income towards debt” plan. I would weigh what I would have left over if I made a higher debt payment vs. what I could do with my income if I made a lower debt payment. And, in many ways, even putting 20 percent of my income towards debt counts as “poor person thinking,” because—to quote the video—”their spending is disciplined rather than getting lost in the shuffle of daily urgencies.”
And then there’s “liquidity farming,” which they translate as giving to the community when you have extra, so the community will give back to you when you need it. That’s just… being in a community, right? Am I spoiled for having grown up in a small town?
It feels weird to compare my financial habits to those of this hypothetical poor family who is working in some kind of global unnamed farmland and making less than $2 a day, but it also feels weird to watch this video and read the article and learn about “financial decision-making practices commonly employed by poor people.”
Because it reads like “financial decision-making practices commonly employed by many people.”
But maybe that’s just me. So I’ll ask you: do you recognize any of these financial habits as your own?