In Hard Times, People Who Grew Up Poor Spend More, Cut Less

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PHILADELPHIA, PA - MAY 31: at Weso Mini Market, a Philadelphia corner store that stocks fresh fruits and vegetables as part of government program aimed at providing nutritional foods in some of the city's lowest income neighborhoods, on May 31, 2012, in Philadelphia, PA. Since 2009, Philadelphia has secured millions of dollars in federal funds to combat a surging obesity rate, now hovering around 66 percent for adults. Many dollars have gone towards bringing nutritious, affordable foods to neighborhoods that have traditionally gone without. (Photo by Jahi Chikwendiu/The Washington Post)
Jahi Chikwendiu/The Washington Post via Getty Images
What would your response be to the following questions?
  • Would you prefer to have $20 tomorrow or $30 a month from now?
  • Would you prefer a certainty of receiving $20 or a 60% chance of getting $50?
  • Would you rather have $40 today or $50 next week?
  • Would you rather be certain of receiving $30 or have a 40% chance of getting $45?
Now, consider how your answers would be different if you grew up in a wealthy family or if you came from a poor one.

Recently, a team of researchers from MIT Sloan School of Management posed these questions to subjects in a series of experiments to confirm the impact of "life-history theory," which says that your early life environment creates a pattern of behavior and responses that emerge even more strongly in adults during stressful times.

What they found was that the economic environment in which you are raised influences how you handle financial problems as an adult. No surprise there. What's eye-opening about their findings is how people from different walks of life act during times of economic crisis.

In a nutshell: Poor people spend more than rich people during difficult economic times.

Stress Response: Save or Spend?

You'd think that when times are tough, everyone's natural instinct would be to pull back on their spending and switch to save mode. It also seems logical to expect that those who grew up in families that struggled financially would be more cautious about money when faced with a weak economy.
But when measuring the survey responses, Prof. Joshua Ackerman and his fellow researchers found that people who grew up in rich households were more risk-averse and reacted to an economic crisis by slowing their spending. Meanwhile, people who grew up poor were more impulsive and took more risks than those from wealthy backgrounds.

A supplementary experiment testing how recession cues affect decisions to save rather than to spend money from a paycheck gave the researchers similar results: Individuals from wealthier backgrounds chose to save for the future, while those from low-income childhoods opted to spend money to improve their current quality of life.

Why Do People Who Grew Up Poor Spend More?

On the surface, spending more when times are tough may just seem foolish, but Ackerman says that people who come from a poor background are behaving rationally according to their psychological instincts.

Ackerman explains it this way: If you grew up poor, your life history may lead you to think your chances of surviving a recession and coming out ahead are very low. Your expectation that your lifespan may be shorter -- again, based on your life history -- means that instead of taking measured steps to preserve the little money you have, you're more likely to take risks and spend money on things like jewelry or cars in order to show off and attract others to "promote reproductive success."

What Was Your Recession Reaction? Not everyone responds in the same way to stress, whether financial or otherwise. What has been your response to the tough economy? How do you think it was influenced by your upbringing?



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7 Comments

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Kelley Frye

One theory is left out. I grew up in a poor household and rose above it and in hard times I continue to spend the same because I have more confidence in my abilities to rise above bad times. Clearly that idea was left out. If you are self made you do not believe that bad times will do you in you believe you can continue to prosper.

April 06 2013 at 9:18 AM Report abuse rate up rate down Reply
rdrvr1752

Not a very useful article. For starters, define "rich." For example, someone who grew up in a household with a more modest investment portfolio, say a million or so, is likely to have a far different attitude toward the need to conserve capital than someone with a very large fortune. On the other hand, I do think deprivation in youth can affect spending patterns later in life. For example, I have a clothes horse friend who talks about how bitter she felt about wearing hand-me-downs as a child. I grew up in a "typical" 1950s single breadwinner home. Dad was a professional who provided the family with a nice home and indulged the family and himself in middle class luxuries like new cars, summer vacations, and nice clothes. On the other hand, both my parents were products of the Great Depression and saw the need to conserve and invest wisely. I think the overall result was that neither my brother nor myself lust after things to fill any void from childhood deprivation and practice the virtues of thrift and long term planning our parents practiced. I suspect that's quite different from the expectations of someone who grew up with very little or someone who grew up very rich.

April 06 2013 at 5:43 AM Report abuse rate up rate down Reply
Jo Ann

I don't know who did this survey,study or what ever you call it but, it is not applicable to all who are or have been poor all their lives. I don't spend what i don't have and I don't know anyone who does. Poor people try to hold on to their money as long as possible in most cases. Shop frugally and do without what most people take for granted.

April 05 2013 at 6:46 PM Report abuse -1 rate up rate down Reply
cattiemom

Hi. I am "dirt poor." Everything but my SS and small pension has shot up recently. I grew up poor. I am finishing my life (age 78) poor. And I am supporting another family member who has extremely little in SS. Recently I canceled magazine subscriptions. I am in the process of bundling my phone, TV, and computer (a very old one.) I may have to stop my newspaper. I had a $5000 cushion in my checking account, the last of which recently completely vanished. I still have some small savings but had to take money out of it to replenish my checking account. When that savings account vanishes, I will be totally screwed. I moved from a house to a tiny apartment which now costs twice what the house did, almost. I have always been very frugal. No bling, no toys, no books any more. Recently I cut back on groceries and eat much less. How long can I get along on this? I don't know. People who are rich don't know how lucky they are. I have not cut back much because there are very few places left to cut.

Figure that out for me!

April 05 2013 at 5:33 PM Report abuse +1 rate up rate down Reply
Dano

Well at least the ultra rich don't have to worry in hard times. They simply steal all the middle classes goods and securities.

April 05 2013 at 4:38 PM Report abuse rate up rate down Reply
gmydogbud

Grew up poor, parents did not have a bank account or checking account, everything was paid for in cash. If we ran out of eggs, butter, milk or whatever before our father was paid, we just did without. If we took a bus to school in the winter, then we did not have lunch that day. We did not have vacations, or fancy cloths, etc. & as adults, we work very hard, do without so that in our old age, we will be able to get, by! We may be doing the wrong as I heard today that if you do the right thing and you do save for your old age then he wants to charge you more for Medicare & Prescriptions & cut your Social Security! What a Guy, always off on a vacation, playing golf, having parties at the White House, or sending our money to countries & people who want us dead!!

April 05 2013 at 3:48 PM Report abuse +1 rate up rate down Reply
anothergent007

well it might be true its not 4 me i grew up very poor and i mean very poor. at times even ate dog either that or nothing and most of the time it was nothing .im grown now 46 and i own the company that i work at . i dont spend any money that i dont have to. havent been to a movie in years . havent eaten out in about 6 months just work and home. so my point is im not poor anymore but i still wont spend the money

April 05 2013 at 3:14 PM Report abuse rate up rate down Reply
i.am

Very interesting article.

April 05 2013 at 3:13 PM Report abuse -1 rate up rate down Reply