{"items": [{"author": "David German", "source_link": "https://plus.google.com/111229345142780712481", "anchor": "gp-1377262128974", "service": "gp", "text": "Lack of reserves certainly causes mental stress, but I think it also causes direct financial stress. \u00a0It's better to receive $20,800 on Jan 1 each year than to receive $400 every week - even neglecting the time value - because you can use the lump sum strategically. \u00a0For instance, you'll be able to afford 100 rolls of toilet paper when they go on a really cheap sale in February, and then buy none for the rest of the year.\n
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\nI guess this is another way of stating the GiveDirectly premise: the investments available to the poor have much higher returns than those available to the rich.", "timestamp": 1377262128}, {"author": "Brad", "source_link": "https://plus.google.com/116032343632043704302", "anchor": "gp-1377343575807", "service": "gp", "text": "@David German\n\u00a0\"\u00a0It's better to receive $20,800 on Jan 1 each year than to receive $400 every week - even neglecting the time value - because you can use the lump sum strategically.\"\n
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\nTrue, and if you've ever read the book (or the website) \"Portfolios of the Poor,\" you can get a sense of the ingenious and sophisticated strategies that very poor people have developed to manage their finances. But that book also makes it clear that these people have very little financial resilience: their strategies work as long as everything goes according to plan. But if someone gets sick, or bad weather wipes out a source of income, they frequently have little or nothing to fall back on.\n
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\nAlso worth noting that while it may be better to receive your income at the beginning of the year than month by month, it requires a lot more discipline to stay within budget that way. There's a lot of convincing research to show that people tend to spend more if they have a big pool of money available, just as they tend to eat more if you give them a big plate of food. For people who have trouble living within their means, rationing may work better because it breaks large quantities into smaller portions.\u00a0", "timestamp": 1377343575}, {"author": "Jeff Kaufman", "source_link": "https://plus.google.com/103013777355236494008", "anchor": "gp-1377347111981", "service": "gp", "text": "@Brad\n\u00a0\n@David German\n\u00a0It would be interesting to run a study where you compare \"lump sum at the beginning of the year\" to \"bank card that fills continuously at X cents per hour\" and see which group of people did better. \u00a0I see both the argument that you can use the lump sum more effectively and the argument that it's harder to screw up a continuous stream and it requires less willpower.", "timestamp": 1377347111}, {"author": "Brad", "source_link": "https://plus.google.com/116032343632043704302", "anchor": "gp-1377355371396", "service": "gp", "text": "My guess is that it depends on the context in which people live. For example, in the UK and much of Europe, people often get one paycheck per month, so they have to learn to be disciplined about budgeting so they don't run out before the next paycheck. Similarly, poor people in developing countries are highly skilled at making a lump sum of money go a long way. But a person in the U.S. who gets two paychecks per month or who's paid weekly might find it difficult to manage a large lump sum. You often see this behavior with lottery or other prize winners, professional athletes, and movie stars: paradoxically the more you earn the harder it can be to live within your means.", "timestamp": 1377355371}, {"author": "David German", "source_link": "https://plus.google.com/111229345142780712481", "anchor": "gp-1377361893645", "service": "gp", "text": "@Brad\n\u00a0\"paradoxically the more you earn the harder it can be to live within your means.\"\n
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\nI'm not sure I believe this. \u00a0There may be a cognitive bias to focus on low-income people who succeed at accumulating some wealth, or high-income people who blow it all, because those are the \"remarkable\" stories.\n
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\nAlternative explanation: certain modes of earning are well-correlated with strong personal finance skills (small-scale farmer, shopkeeper, but also engineer, professor, senior executive...), while others aren't (lottery winner or pro athlete, but also any number of low-income jobs). \u00a0", "timestamp": 1377361893}, {"author": "David German", "source_link": "https://plus.google.com/111229345142780712481", "anchor": "gp-1377362111969", "service": "gp", "text": "So anyway, I think \n@Jeff Kaufman\n's experiment would be interesting. \u00a0The only viable implementation I can think of is to study recipients of government assistance. \u00a0They probably aren't representative of the general population, but may be the most important group to learn about from a public policy standpoint anyway.", "timestamp": 1377362111}, {"author": "Brad", "source_link": "https://plus.google.com/116032343632043704302", "anchor": "gp-1377366122085", "service": "gp", "text": "@David German\n\u00a0I can believe that some modes of earning may be well correlated with strong personal finance skills, but the phenomenon of lifestyle inflation is pretty well documented: people tend to spend more as they earn more, and unless you're frugal by nature (or training) it can be easy to spend too much if your income is so large that it feels limitless.\n
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\nThere are analogies in food, where this effect has been studied well (see the Cornell studies on stale popcorn, in which theater-goers were given different-size containers of very stale, barely edible popcorn: the people who got big containers of popcorn ate about a third more than the people who had small containers, even though the popcorn itself was so stale that it squeaked when they bit into it and thus eating it wasn't pleasant. This experiment has been replicated in many different locations).\n
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\nMoney's probably different, but I think the popularity of \"envelope budgeting\" and other ruses to break large amounts of available money into smaller more manageable chunks suggests that many people find it easier to manage small rather than large amounts of money.", "timestamp": 1377366122}]}