Think you’ve got better money management skills than the world’s poorest? You might be surprised to find out that you’d be up against stiff competition.
Jonathan Morduch and Daryl Collins report on their journey to various corners of the world (Bangladesh, India and South Africa to be exact) to observe how people living on less than $2 a day managed their financial lives in the recently published book Portfolios of the Poor. Their findings were summed up nicely in a recent review in the Washington Post: "the poorest people on earth engage in the sort of sophisticated money management that would make Chuck Schwab proud."
Morduch and Collins recently gave a presentation on their findings at CGAP. The punch line of their presentation: despite any perceptions to the contrary, the poor are by and large very 'numerate' and maintain active financial lives. They have to be—the incomes of the poor are not only low but also random and unpredictable, a triple hit.
To obtain the data that backs up their claim, Collins and Morduch observed a number of families for an extensive period of time and maintained financial diaries for these households. They talked up the fact that financial diaries are an effective way to track the financial activities of the poor (think great documentary as opposed to the Polaroid picture provided by a one-off survey).
Although their findings might at first seem to be commonsense, they have practical implications for the design of better financial products for the poor. Collins and Morduch present a much needed new approach to looking at the financial needs of the base of the pyramid. Policymakers and practitioners need to find ways to quickly scale up these solutions and make them more accessible and less informal.
And for those of you out there wondering what they are up to next? Collins says she will be coming out soon with a pilot study using the same methodology of financial diaries, this time for small businesses.