Jo Goodwin Parker, in the essay “What Is Poverty?” discusses the various factors which accompany the life of a poor person. The author argues that there are situations when people cannot control the conditions in which they find themselves and pays special attention to various services and essential goods for which people do not have the money, which makes them remain in poverty because it becomes extremely difficult and almost impossible to change the situation. However, poor people often prioritize short-term decisions, are unable to properly allocate resources, have low financial literacy, and acquire debt; therefore, poverty is often the result of human activities and ineffective financial decisions.
In addition to describing needs, Parker discusses how difficult it is for a poor person to get a loan, even from a relative. She emphasizes that the process of receiving such help is extremely emotionally stressful due to the “shame of your poverty” (Parker 318). Parker further talks about government support in the form of seventy-eight dollars, which is not enough to live with six children (Parker 319). The author sees the only opportunity to purchase financial assistance either in a loan or in government benefits. This approach to solving financial problems instantly and temporarily seems to be the most typical for people in poverty.
One of the reasons for the deteriorating financial situation of many people is the propensity to acquire debt. Financial behavior researchers note that “in moments of need, the loan looked urgent and appealing, so they paid less attention to the high-interest rates” (Shafir 132). People in poverty tend to find short-term solutions which can meet their current needs. However, in the long term, their financial situation is only aggravated by the accumulation of debt and interest. This assumption can be illustrated by a remote from real poverty, but a telling example.
For example, one of my friends always dresses in high-quality and expensive clothes. However, I always knew that he had neither rich parents nor a prestigious, high-paying job. It appeared that his secret lies in the constant use of loans that he takes to cover existing debts. Thus, in order to meet his current love of expensive clothing, he puts himself in a position where he is forced to constantly be in debt. Moreover, when earning money, he is also obliged to pay it back to cover his loans. This example illustrates well the statement that “the characteristics of low-income individuals have been shown to negatively affect financial decision-making” (Loibl 423). Poverty forces people to both make ineffective long-term decisions and strive for external well-being.
Furthermore, people in poverty are often unable to organize their budgets to deal with more significant problems. Parker notes that the poor have no money for medicines and treatment of basic diseases (317). However, this problem is complex since it comes from living conditions and nutrition. In the case when a person is able to manage the budget by targeting priority needs, he or she maintains well-being and does not have sudden additional spending. Loibl also notes that poverty creates stress and mental strain, which prevent people from using resources rationally (423). Focusing on broader issues rather than individual needs is a more effective approach to solving financial problems. In particular, in relation to the example with my friend. He should have used loans not for buying clothes but for education and development. Thus, he would be able to get a high-paying job and buy expensive commodities. However, current debt with high-interest rates does not leave him free money to acquire knowledge and skills.
Education in the modern world involves spending, which is due to the high level of demand for highly qualified specialists. However, people with low incomes are often unable to acquire a quality education or develop on their own due to everyday problems. Thus, their financial literacy is also limited, which leads to an inability to assess their situation and make effective decisions. Poor people often have a high level of skill in managing recurrent expenses, looking for additional sources of income or credit opportunities. However, they are often illiterate “with regard to financial planning and knowledge of the larger scope of policies and procedures of financial services” (Loibl 324). This problem stems from both low levels of general education and an inability to manage resources more efficiently for long-term gain. Thus, poor people are in search of unprofitable but instant solutions, including due to financial illiteracy.
Poor people who do not have enough income are often unable to borrow from official credit organizations or banks. Thus, they have to resort to the help of the “informal credit market” (Loibl 324). These options include pawn shops, organizations providing small short-term loans, rent-to-own establishments, and others. However, such lending opportunities always come with high-interest rates, which make the debt of poor people permanent. Moreover, limited financial literacy prevents people from assessing the consequences of this decision. For example, my friend also could not apply to official credit institutions to meet his current needs since he has no official income. Thus, he was forced to take short-term loans from informal organizations at high-interest rates. Ultimately, his debts continue to accumulate and multiply, and to cover them, he has to take new loans. This financial behavior is the most dangerous in conditions of poverty, as it leads to permanent debt. A person is not able to find money to cover debts, which forces him to acquire new ones. Thus, he falls into a vicious circle without being able to escape it.
The essay “What Is Poverty?” is dedicated to the difficult conditions which prevent people from overcoming poverty. However, people often aggravate their financial situation due to a number of ineffective decisions. Poor people seek to solve current problems without paying attention to the broader spectrum of long-term issues. Thus, they are unable to allocate their limited resources to get the most out of them. This circumstance is often a consequence of financial illiteracy and a low level of education, so poor people do not have the opportunity to assess the results of their activities. Moreover, poverty and low income force them to seek help from informal lending institutions and borrow at high rates, which in turn traps them in an endless circle of debt. Thus, poverty can be a consequence of human activities and not depend solely on the environment.
Works Cited
Loibl, Cäzilia. “Living in Poverty: Understanding the Financial Behaviour of Vulnerable Groups.” Economic Psychology (1st ed.), edited by Rob Ranyard, John Wiley & Sons, 2017, pp. 421-434. Web.
Parker, Jo Goodwin. “What Is Poverty?” America’s Other Children: Public Schools Outside Suburbia, by George Henderson, University of Oklahoma Press, 1971, pp. 317-321.
Shafir, Eldar. “Decisions in Poverty Contexts.” Current Opinion in Psychology, vol. 18, 2017, pp. 131-136. Web.