How do the poor spend their money?

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Using World Bank and Rand Corporation survey data MIT's Abhijit Banerjee and Esther Duflo in a new study titled "The Economic Lives of the Poor" look at the living, working, spending, borrowing, and saving habits of the very poor. The paper shows how the very poor still exercise economic choices but these are very constrained by poorly working markets and access to services. Among other things the papers finds that:

it is apparent that spending on festivals is an important part of the budget for many extremely poor households. In Udaipur […], more than 99 percent of the extremely poor households spent money on a wedding, a funeral, or a religious festival. […] In South Africa, 90 percent of the households living under $1 per day spent money on festivals. In Pakistan, Indonesia, and Cote d’Ivoire, more than 50 percent did likewise. Only in some Latin American countries in our sample - Panama, Guatemala, Nicaragua - are festivals not a notable part of the yearly expenditure for a significant fraction of the households.

Intrigued? Read Rob Katz for a favorable review of the paper. For a less complimentary one, see Andrew Leonard's.

Update: Tim Harford has also written on the subject.

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