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Portfolios of the Poor

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Portfolios of the Poor

How the World’s Poor Live on $2 a Day

Princeton UP,

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To understand better how to help poor people, study the ways 2.5 billion (World Bank, 2005) of them survive on less than $2 a day.

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9

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  • Innovative
  • Overview
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Recommendation

The World Bank said in 2005 that 2.5 billion people live on less than $2 per person, per day. Researchers Daryl Collins, Jonathan Morduch, Stuart Rutherford and Orlanda Ruthven say the poor rarely spend all the money they get. After using financial diaries to track the day-to-day monetary activities of more than 250 households in Bangladesh, India and South Africa, the authors report that the poor are active money managers who handle relatively large cash flows and usually build savings into their “portfolios.” The authors believe international development efforts should provide poor households with better financial tools for managing their current incomes. The authors describe the challenges and strategies of impoverished households, and paint academically restrained – but still touching – portraits of individual families. getAbstract recommends this meticulous research and its conclusions to international development workers, microbankers, nongovernmental organization officials and social entrepreneurs. Microfinance providers will find guidance to tailoring products to fit the complexity of poor people’s lives.

Summary

Impoverished People Learn to Be Efficient Money Micromanagers

In 2005, says the World Bank, 2.6 billion people lived on earnings of less than $2 a day, and about 40% of them scraped by on about a dollar. You might expect people in such straits to spend every penny as soon as they get it, just to keep a roof over their heads and food on the table.

You might conclude that the best antidote is to raise their incomes through charity or global industry. Yet when you examine the financial lives of the poorest households, you find a different picture. The poor are active money managers who employ a dizzying array of mostly informal financial instruments to manage their “portfolios,” stretch their meager earnings and build savings.

A long-term policy focus on income is important, but policy makers and advocates should push for initiatives to support poor families’ money management. Access to reliable financial tools would let the poor immediately reduce the unpredictability and risk in their lives.

The Poverty Study

Starting in 1999, a team of researchers tracked the financial activities of more than 250 rural and urban households in Bangladesh, India...

About the Authors

Daryl Collins is a senior associate at Bankable Frontier Associates. Jonathan Morduch teaches public policy and economics at New York University. Stuart Rutherford is a founder of the microfinance institution SafeSave. Orlanda Ruthven recently completed a doctorate in international development and works on youth employment and labor standards in India.

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