By necessity, low-income and asset poor individuals are unable to accumulate wealth to build assets and focus on long-term sustainability due to their focus on current financial instability. Most lack the access to and knowledge of appropriate financial tools and tend to rely on informal borrowing tools and social networks for assistance.
To illustrate, consider the …show more content…
(Chapter 4). Behavioral economics expects individuals to occasionally deviate from rational behavior, sometimes acting impulsively. In the case of low-income individuals, this non-optimal behavior may conflict with long-term savings goals; however, the lack of willpower is a result of the lack of ‘bandwidth’ and attention remaining given the constant strain of poverty and scarcity. (Savings Policy; Chapter One).
Given this perspective, individuals with comfortably higher-incomes avoid the strain faced by those with lower-incomes and possess adequate bandwidth for considering to optimal spending decisions, and making them less likely to act impulsively. Individuals with low-incomes risk acting impulsively and, unfortunately, suffer consequences due to the lack of “slack” in their finances. Thus, the low-income individuals remain unable to effectively save and build assets while the higher-income individuals increase their asset building potential over