It’s easy to make assumptions about poverty, Jonathan Morduch told the audience at Skinner Memorial Chapel during Carleton College’s convocation last Friday.
“We assume it’s very difficult to plan for the future, that saving is something that would be a luxury but not necessary,” he said.
While working on a newly-published book, Portfolios of the Poor: How the World’s Poor Live on $2 a Day, Morduch and three colleagues discovered that “those assumptions turned out to be more wrong than right.”
A professor of public policy and economics at New York University’s Wagner Graduate School of Public Service, Morduch has served as chair of the United Nations’ Committee on Poverty Statistics and as an adviser to the World Economic Forum and the Grameen Foundation.
His work focuses on poverty and development economics and the financial tools he believes will combat the problems of the world’s poor.
According to Morduch, 40 percent of the world lives on $2 a day or less, and “around one billion people are living on under $1.25 per day.”
“Two dollars doesn’t even buy me a coffee at Starbucks,” he said. “That so many of our fellow citizens live on so little is shocking.”
In the early 2000s, Morduch and colleagues Daryl Collins, Stuart Rutherford and Orlanda Ruthven began exploring the lives of the poorest populations of Bangladesh, India and South Africa.
“The big question that we asked ourselves was a fundamental one, but was one that we here in rich countries don’t ask ourselves because we don’t know how to answer it,” Morduch said.
That question is: How exactly do people live on $2 a day?
In a combined economic and anthropological study entitled “Financial Diaries,” the researchers spent time in various homes over the course of a year. They gained the trust of families, finding “elements of people’s lives that were being hidden” in larger economic surveys.
“The data the profession uses in many ways has lots of problems,” Morduch said. “Over three months, it got to a point where we had earned some trust. We tracked penny by penny how households are doing what seems so impossible to us.”
They found that, contrary to their assumptions, money managing was at the center of poor households.
The families Ruthven met in India were entering into new financial relationships every two weeks, and two-thirds of the money entering households in Bangladesh was “finding its way into some kind of financial device.”
Since the income from farming and other moneymaking efforts fluctuates throughout the year, the families realized they needed to account for the down times of the up-and-down cash flow.
This, according to Morduch, marks the “triple whammy” of poverty-rooted issues. Not only do families have low incomes, but their incomes are also irregular and unpredictable, and they lack the financial tools to account for seasonal swings.
“The challenge of living on $2 a day is that $2 a day is just an average,” Morduch said. “Poor households have active financial lives, not in spite of being poor, but because they are poor.”
He mentioned one 77-year-old woman in South Africa named Nomsa, raising four children, including two grandchildren after her daughter’s death from AIDS.
Nomsa gets $120 per month from a government grant savings account, but she also set up a savings program with friends in her village. Each month everyone adds $9 to a pot, and after 11 months, they each receive $99 to use for Christmas expenses and new clothes.
“Nomsa has a savings account through a grant,” Morduch said. “But when she actually saves, she does it with her friends.”
When Nomsa doesn’t put money in the pot, she “feels like she’s letting her friends down,” a form of self-discipline that Morduch sees as key to programs aiming to provide more financial tools for the poverty-stricken.
While he supports microfinance, which helps people in poor areas start their own small businesses, he believes other savings and microcredit options are equally helpful.
One of these, the S.E.E.D. savings deposit program run through the rural-focused Green Bank of Caraga in the Philippines, works similarly to Nomsa’s system. Clients deposit a certain amount of money each month and set a date to take it out, creating a disciplined structure “so you can’t hold the money in your hand.”
In the Green Bank branches where the program has been used since it started in 2006, according to Morduch, saving rates went up 80 percent
Another pension scheme offered by Grameen Bank II since the early 2000s takes monthly deposits at village meetings for a five to ten year term, offering ten percent interest over five years to pensioners in business and non-business endeavors.
Grameen Bank won the Nobel Peace Prize in 2006 “for their efforts to create economic and social development from below,” the Nobel Prize committee said. According to Morduch, “they are now taking in more savings than they are giving out.”
In a set of “Grameen Diaries” from 2002 to 2005, researchers discovered that many of their microcredit loans, like the pension scheme loans, were borrowed for purposes other than business.
With these loans being offered to more than just small business owners, Morduch sees them as ideal for solving the problems of the poverty-stricken, including poor healthcare and educational opportunities.
“The focus on microcredit as so directly tied to microenterprise is very limiting,” he said. “Poor households have a better idea of what they need. The hidden tragedy is they are lacking the tools to make do with the little money they have.”