Research on Poverty and Saving Behavior- based on the Perspective of Scarcity Mentality and Time Preference

Abstract

The lack of dependable savings accounts seems common to the worlds low-income group. It will greatly limit the process of becoming rich, and even cause some people who have been out of poverty to return to it again. Today, new research from the fields of behavioral economics is shedding light on how poverty may shape an individuals saving behaviors. Hence, this article focuses on two psychological traits that are strongly associated with saving behaviors, especially for low-income groups: scarcity mindset (poverty reducing mental bandwidth) and time preference (favoring immediate rewards over long-term considerations). Through the literature reviewing, we propose a general analytical framework of poverty-scarcity mindset-limited cognitive capacity and executive control-time preference (present bias)-saving behavior-poverty trap. Then we present commitment programs and cognitive supports as two anti-poverty policy recommendations based on these phenomena, to promote welfare for low-waged families.