Despite their purchasing practices, the poor have many innovative ideas

The latest Mendelsohn Affluent Report, based on the U.S. Bureau of Labor Statistics Consumer Expenditure Survey was released on Thursday.

So? I’m a statistics geek. I was excited.

The Mendelsohn report analyzes the “role of Affluents as the spending engine that drives today’s consumer economy.” This is good news for our economy. The 58.6 million adults with annual household incomes of $100,000-plus have nearly 60 percent of total household income and 70 percent of all privately held wealth — and they are spending their money.

In fact, they account for nearly half of consumer spending in 38 categories and about a third in 112 categories, from airline travel and hotels to second homes and remodeling to jewelry, online gaming and charitable donations.

In most categories, they are outspending the other 254.4 million Americans by a considerable margin, with the intriguing exception of cable and satellite TV. Here, the spending numbers are reversed. Most of us spend considerably more than our affluent neighbors.

Ordinarily that wouldn’t have registered as particularly significant, but I’d just finished reading “Poor Economics,” on the bedside tables of many of Foreign Policy magazine’s “Top 100 Global Thinkers.”

The book is a culmination of a 15-year study of the world’s poor in 18 nations, spanning five continents. The authors (two Massachusetts Institute of Technology economists) note that no matter how hungry or destitute, a good number of their study subjects had flat-screen TVs. We’re talking about people living on as little as 99 cents a day (excluding housing).

Asked why they spent money on TV instead of more food, the answer was nearly always the same. When they did have “extra” money to spend, they purchased “better-tasting food, teas, tobacco” and other small luxuries. Even the very poor allow themselves “treats” beyond a minimally sustainable caloric intake.

I thought of Rick Wagner’s column in Thursday’s Daily Sentinel. He expressed irritation that some of our state’s welfare recipients spend money on alcohol, gambling and “gentlemen’s clubs.” No argument there.

How are people deciding what to spend their money on?

The authors of “Poor Economics” talk about how frequent high-stress situations “directly impair cognitive and decision-making ability. The stress-induced release of cortisol affects brain areas such as the prefrontal cortex, the amygdala and the hippocampus, which are important in cognitive function: in particular, the prefrontal cortex is important in suppression of impulsive responses.” Those high-stress situations basically define the daily life of poor people.

Many poor people work at a variety of different jobs. They use all of their skills as a way to make as much money as possible. That’s a smart response, but it makes it difficult to devote enough time and energy to master a specialization that could advance their financial positions. And because health and family issues are constantly in the forefront, the idea of investing and saving for the future is beyond their perceived realm of possibility.

However, the authors assert that because the poor are unusually resourceful and rarely given the ear of their leaders, many of their ideas prove refreshing and viable — despite their lack of eloquent sophistication — when invited to participate in village and community problem-solving situations.

More than a billion poor people around the world run their own tiny farms or businesses, “but most of them do this because they have no other options,” the book reports, not because they have an innate appetite for entrepreneurial risk.

So, at the end of a hard week or month, they use their few extra coins for “treats,” then escape into the otherworldliness of TV and the Internet. And when conditions become too dire, they may simply give up or join the latest revolution.

Perhaps the next time our own political, corporate and nonprofit leaders are tailoring their speeches for affluent targets who agree with their ideas, buy their products, and fund their organizations, they might also consider the sensibilities of the rest of their constituents and potential customers.

It’s quite possible that the 46.2 million Americans earning less than $22,500 in annual household income and the 208 million racking up between $23,000 and $99,000, who have flat-screen TVs, drink alcoholic beverages and play online games, have a lot in common when it comes to basic spending decisions.

We don’t have to like someone’s character to value their ideas and perspectives. Heck, who knows what exploitable collaborative opportunities could be waiting beyond our comfort zones?

Krystyn Hartman can be reached at .(JavaScript must be enabled to view this email address).


COMMENTS

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The assumption here and in Wagner’s column, that money obtained from cash machines is spent where the machines are located, is not correct. Otherwise, many consumers would spend their cash at banks.

While some EBT withdrawals no doubt go to escapist activities, in some areas, residents may have little choice of where they obtain cash. Less affluent areas have less access to bank branches and grocery stores, for example. The “sin” establishments, more likely located in poor neighborhoods, stay open late and provide a measure of security for the privately owned machines.

My company was located in an urban area where there were lots of places to eat and shop within a few blocks, but the nearest bank cash machine was a half mile walk away, while a porn store had a machine just around the corner. Employees complained, but that’s the one they used.

I was going to point that out, but already a little over in my word count, so thank you!

And that comment is from me, Krystyn Hartman, not Bob. (I need to get the name changed on my online subscription!)

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