I recently discovered the book “Scarcity: Why Having Too Little Means So Much.” To be honest, I don't even remember how I came to find out about the book. Maybe someone recommended it; maybe I read about it somewhere. Lately, I've been overwhelmingly busy, and, as a result, my short-term memory is shot.
Coincidentally, that's what the book is about. Authors/researchers Sendhil Mullainathan and Eldar Shafir explain how our mental bandwidth changes when we don't have enough of something — namely, time and money.
Contrary to the belief that poor decision-making leads to poverty, the book's authors sought to prove that it's actually the other way around: poverty (or scarcity) leads to poor decision-making. What's more, scarcity creates an awful cycle of bad decisions. The authors point to study after study that proves this to be true.
According to the book, there are a variety of ways scarcity negatively impacts our mindset.
“Scarcity is not just a physical constraint,” the book points out. “It is also a mindset. When scarcity captures our attention, it changes how we think. By staying top of mind, it affects what we notice, how we weigh our choices, how we deliberate, what we decide and how we behave.”
Scarcity lowers cognitive capacity
The researchers conducted a variety of experiments to test the effect of scarcity on our cognitive capacity. To put it crudely, they wanted to find out: Does scarcity make us dumb? Or at least, does it make us perform poorly?
In one study, researchers conducted basic IQ tests on subjects in a New Jersey mall. They noted the subjects' self-reported income, and introduced them to a financial problem:
“Imagine that your car has some trouble, which requires an expensive $3,000 service. Your auto insurance will cover half the cost. You need to decide whether to go ahead and get the car fixed, or take a chance and hope that it lasts for a while longer. How would you go about making such a decision? Financially, would it be an easy or difficult decision for you to make?”
Without this problem presented to them, both groups generally performed the same on the tests. But once the financial problem was presented, sure enough, the low-income group performed worse than the high-income group.
To test their hypothesis in the real world, the researchers studied sugar cane farmers in India. They found that, during months when their crops weren't harvested (and they weren't paid), farmers performed worse cognitively than where their pay was abundant.
“Using these tasks, we found that farmers performed much worse before harvest than after harvest. The same farmer fared worse on fluid intelligence and executive control when he was poor (pre-harvest) than when he was rich (post-harvest). Much like the subjects at the mall, the same person looked less intelligent and more impulsive when it was poor. Yet in this case it was not us who triggered scarcity-related thoughts or even tried to bring them to the surface. These thoughts were there naturally…”
Basically, in both a controlled study and in a study of the real world, Mullainathan and Shafir found that not having enough lowers our intellectual performance.
Scarcity makes us less polite
In yet another study, researchers wanted to test the effects of scarcity on behavior. They presented a group of Australian students with “something they found revolting: a chicken foot cooked in a Chinese style that preserved the entire foot intact, claws included.”
“The challenge for the subjects was that this was served by a Chinese experimenter, creating some pressure to act civilized.”
Before being presented the chicken foot, some of the subjects were asked to memorize two numbers. Others were asked to memorize eight. Obviously, the latter task was more difficult. It imposed upon their bandwidth. Those participants were now busy with the task of memorizing a series of numbers.
Subjects who only had two numbers to memorize were polite about the offering of the chicken foot. The taxed group wasn't so polite:
“Those whose minds were not loaded managed to maintain composure, keeping their thoughts to themselves. Not so with the cognitively loaded subjects. They would blurt out rude comments, such as ‘This is bloody revolting' despite their best intentions.”
When our brains are preoccupied, we act differently. We're less focused on the “pressure to act civilized.” Based on their data, it seems like our preoccupation makes us less polite.
Scarcity makes us more impulsive
Mullainathan and Shafir used the same number memorization experiment to test impulsiveness. Instead of presenting groups with a chicken foot, they presented them with a room of cake and fruit, giving them the choice of either.
“Those whose minds were not terribly occupied by the two-digit number chose the fruit most of the time. Those whose minds were busy rehearsing the seven-digit number chose the cake 50 percent more often. The cake is the impulsive choice … when our mental bandwidth is used on something else, like rehearsing digits, we have less capacity to prevent ourselves from eating cake.”
Scarcity causes neglect
To summarize the rest of the findings, the book's researchers found that scarcity causes us to neglect other areas of our life and prevents us from thinking about the consequences of our decisions. The book points to a series of real-world examples, including payday loans:
“Why do those strapped for cash take on such extreme loans that they cannot afford to pay back? Why do they allow themselves even to start down such a slippery slope? Such questions typically lead to debates about the importance of personal responsibility or about how unscrupulous businesses prey on low-income individuals; they fuel discussions about the myopia of the poor and the need for financial education…”
Those arguments might have some truth to them. We've often talked about the need for financial education. And the answers to the problems aren't simple. But, overall, the book points out that, in addressing the issue of poverty, we should consider the role of the scarcity mind-set.
When we're constantly juggling life's demands, zeroed in on survival, we don't have much time to take a step back and focus on the big picture.
Are there any advantages to scarcity?
The book does address the benefit of scarcity. When we're under pressure, sometimes we perform better. Sometimes, not having enough teaches us lessons that help us later in life. This reminded me of our discussion on romanticizing poverty. Yes, maybe there are some lessons you learn when you don't have enough. But, as the book explains, and as many of you pointed out in that post, this can have a negative impact in the long-term.
“What [the poor] have is a specific skill: they are better at making ends meet today. They make a dollar go further. This expertise can make them appear more rational, less prone to inconsistencies, in some contexts. But this local expertise also becomes a hindrance. Along with the focus that brings expertise comes tunneling. And with tunneling comes a slew of negative consequences.”
When you're tunneling, you're only focused on the desperate situation of the moment. Other areas of your life become neglected. You lack foresight, and you get caught in a scarcity trap.
Breaking out of the trap
If you're struggling with a major lack of resources, you can probably relate to the trap of the scarcity mindset. Living paycheck to paycheck is an example of this trap.
When I was struggling to pay off student loan debt without an emergency fund, I was stuck in a scarcity trap. I thought it was silly to save $1,000 for an emergency when I felt buried in debt. To me, I was struggling to financially survive, and saving for an emergency seemed like a luxury. But an emergency would always pop up, as they inevitably do. I'd end up taking one step forward and two hugely frustrating steps back. So in a moment of clarity, I vowed to start an emergency fund. Once I created that safety net, I was able to reach my goal more easily. I broke out of the trap.
In the book, the authors refer to tunneling. When you're overwhelmed with scarcity, you get tunnel vision. Your only focus becomes the quick fix to the various emergencies that arise.
In a chapter titled “Scarcity in Everyday Life,” the authors share some research-based insight on how people cope with the effects of scarcity.
The following is a very general rundown of each of their points. I should mention that, in the book, some of these seem to be less meant as solutions and more as objective observations on, well, scarcity in everyday life. Still, I think these observations are helpful.
The authors point out just how effective simple reminders can be. In one of their studies, they sent subjects a simple reminder at the end of the month, via text or letter, to save money.
“This benign reminder alone increased savings by 6 percent,” the authors reported. “We were able to increase savings not through education or by steeling people's willpower but merely by reminding them of something important that they tend to overlook when they tunnel.”
A quick, simple reminder can distract you from your scarcity problem and redirect your focus to the big picture.
Reminders, in all of their simplicity, are seriously underestimated. Here's a personal example. I've talked about how I sometimes overwork myself. I feel stressed, and I worry about not having enough time to finish a project. The result? I get burnt out, the quality of my work decreases, and this stresses me out. I feel like my only option, as I'm stressing, is to push myself. I don't have time to think about the big picture; I get stuck in a trap.
For me, it helps to set a reminder on my computer to shut down at a certain time. Yes, some days I don't finish as much as I want to, but after heeding these reminders for a while, I have more time, I'm less stressed, and the quality of my work improves.
How can you use reminders to break a financial scarcity trap? If you read this blog regularly, that's a reminder in and of itself. A reminder is anything that makes you remember your financial goals. This could mean:
Scheduling an alert on your calendar to do some financial spring cleaning.
Taking the time to celebrate your financial milestones.
Using an accountability partner to remind you of your financial goals.
Taping your financial goals to your desk — or credit cards!
Automate your vigilance
When you automate your finances, there's less risk of making financial mistakes when you're tunneling.
“Automatic bill pay is a prime example. A busy person who enrolls in automatic bill pay no longer runs the risk — in the tunnel of work — of forgetting to pay her bills. Or, rather, she is free to ignore her bills, but when she does, those bills still get paid.”
When you tunnel, you neglect certain areas of your life. Lots of tasks take vigilance — paying your bills, ensuring you save, etc. When you're caught in a scarcity trap, you have less bandwidth to worry about being vigilant.
By automating your tasks, you can combat this. The book offers a few examples:
“Paying your bills every month requires vigilance. Setting up automatic bill payment only needs to be done once.”
“Remembering to have sufficient cash for tolls while you drive requires vigilance; signing up for E-ZPass…is done once.”
With dieting: “Rather than having to be vigilant every time you grab a snack from the pantry, just be vigilant at the grocery store.”
Automating your savings is a great example of this. You pay yourself first, so your “vigilance” is automatic.
Take action when you're focused
“Our needs for today are pressing; those a month away are abstract and unrealized. This, as we have seen, is how we end up overcommitted. It's how those strapped for cash end up buying items they eventually cannot afford.”
We get stuck thinking in the present without giving much thought to the future. Our future selves seem completely unfamiliar. This seems true even for people who are doing well financially. But those struggling with scarcity have an even more difficult time finding an “appreciation of scarcity in the future.”
Back to my debt example — this is why I neglected to save for an emergency even though an emergency seemed to arise every month or so. This is why some people neglect to save for retirement. The future seems completely disconnected from the present.
To combat this mindset, the authors suggest taking action during a moment of focus. It's pretty simple: next time you think, “Ugh, I really need to get around to doing this,” actually do it.
“Otherwise, you'll plan to do it sometime soon, but you'll be in another tunnel then.”
Change your decision-making time
In the book, the authors use the word “bandwidth,” meaning our mental capacity to deal with certain situations. When our resources are scarce, our bandwidth is taxed, and we don't make the best decisions. One simple way to combat this? Change when you make decisions. In an interview with Marketplace, Mullainathan said:
“One powerful tool is to just change when you make very big decisions. We call this bandwidth. We often neglect the importance of bandwidth in our decision-making.”
He refers to a study that featured farmers as subjects. They studied the psychology of these farmers pre- and post-harvest:
“In some sense, that farmer could say, ‘you know what? I'm a better decision maker post harvest. So if there are important decisions to be made, I'm going to make them then. At least recognize that I have these … waves of capacity.”
Whether the resource is time or money, all of us have probably been caught in a scarcity trap at some point. Many of these answers are simple, but they're certainly not easy. I think most people who have escaped the trap will likely point to one or more of these solutions, though. It can be daunting, and sometimes it can seem pointless and counterintuitive, but it's also worth the effort.
How did you break out of your own scarcity trap? Did any of the above help you stop tunneling? What advice would you give to those who feel stuck?
Author: Kristin Wong
Kristin Wong is a freelance blogger who frequently writes about relationships for MSNâ€™s The Heart Beat blog. After paying off her student loan debt, Kristin decided it was time to pursue her dream and also put her English degree to use. She scrimped, saved and in 2010, left her hometown of Houston, Texas to pursue a writing career in Los Angeles. Since then, she has written for television, web, and occasionally, sketch comedy. When sheâ€™s not attached to her laptop, Kristin enjoys baking, amateur gardening, listening to 60s rock and exploring her city.