Daryl Collins on understanding how the poor manage their money

Co-author of Portfolios of the Poor: How the World’s Poor Live on $2 a Day, Daryl Collins is a senior associate at Bankable Frontier Associates where she’s focused on research around the demand-side dynamics of development finance.

“When you think about the poor, you need to understand how they’re managing money firsthand,” especially since 40% of the world’s population live on $2 per day. Collins continued that the general assumption is that the poor have very little financial life, but when she and her colleagues started to interview poor households in Bangledesh, India and South Africa, they saw something different. 

Collins asked families to track their financial lives through very detailed diaries they recorded.  The data collected — a middle ground between the broader studies that are typically completed and anthropological studies that tend to be more anecdotal  — yielded many valuable lessons.  For example, the poor are confronted with a series of financial challenges including sporadic cash flow, that prompt them to manage those funds even more carefully through contexts ranging from those that are informal, like savings plans, to those that are more formal like credit or microfinance.

Collins relayed a story about a married couple, Hameed and Kadasha — both of whom earn about $2 per day — and their three sons who all live in a single room in Bangladesh. When Collins analyzed their financial diary, she found that this family, like many others she studied, face a “triple whammy” of low income, lack of appropriate financial tools to manage and save, and irregular cash flow.

She also relayed a story about Pumza in South Africa who earns $120/month by selling sheep intestines who kept a financial diary.  Because she’s confronted with irregular cash flow, she depends on borrowing from a money lender at a 30% interest rate and participating in a savings club, an informal mechanism to help her manage her jagged cash flow and keep food on the table.

Nomsa, a 77-year old woman who tracked her financials, also participated in a savings club in which neighbors each contributed $9/month to a neighborhood treasurer, which enabled her to save a significant chunk of her income annually.  Collins explained that the women in this savings club were more compelled to contribute each month because their neighbors were participating.  Even though this savings club process can be flawed, this pressure serves as a commitment device.

The goal is to “try to keep incomes sustainable so that the next generations can do better.”  To that end, Collins believes we need to innovate to get the poor the right tools appropriate to their specific needs to manage money well.

(Photo credit: Thatcher Hullerman Cook)

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