Growing up in poverty affects millions of people in the United States, with long-lasting implications on mental and emotional development. The psychological effects of experiencing poverty during childhood shape an individual’s relationship with money as an adult. Let’s look at the various ways poverty impacts a person’s psychological well-being and influences their financial behaviors later in life.
- Scarcity Mindset
Growing up in poverty can lead to the development of a scarcity mindset, a psychological phenomenon that influences decision-making and cognitive function (Mullainathan & Shafir, 2013). This mindset is characterized by constant worry about resources, a focus on short-term goals, and difficulty in making long-term plans. The scarcity mindset may lead to impulsive spending, poor financial planning, and difficulty in accumulating wealth as an adult (Spears, 2011).
- Attachment to Money
Children raised in poverty may develop an insecure attachment to money due to their early experiences of financial instability. This attachment style can manifest in several ways, such as hoarding money, excessive spending to gain a sense of security, or avoiding financial discussions altogether (Zhang & Leckie, 2018). Insecure attachment to money can hinder a person’s ability to make rational financial decisions, leading to an unhealthy relationship with money in adulthood.
- Financial Literacy
Poverty can limit access to resources, including financial education. Without adequate knowledge and understanding of financial matters, individuals are at a disadvantage when it comes to managing their finances (Lusardi & Mitchell, 2014). Lower financial literacy may contribute to a cycle of poverty, as individuals lack the tools and knowledge necessary to improve their financial situation.
- Intergenerational Transmission of Poverty
Poverty can have a generational effect, with children of impoverished parents more likely to experience poverty themselves. Parental financial behaviors and attitudes toward money can be passed down to children, perpetuating a cycle of financial instability (Conger & Conger, 2002). Breaking this cycle requires a combination of financial education, support, and resources to encourage healthier money management habits.
- Mental Health and Poverty
The stress of living in poverty can have a significant impact on mental health, which in turn can affect an individual’s relationship with money. Chronic stress, anxiety, and depression associated with poverty can lead to impaired decision-making and difficulty in managing finances (Haushofer & Fehr, 2014). Addressing mental health concerns is a crucial aspect of improving an individual’s overall financial well-being.
The psychological effects of growing up in poverty have long-lasting consequences on an individual’s relationship with money as an adult. Addressing these issues requires a multifaceted approach, including improving financial literacy, providing mental health support, and addressing the root causes of poverty. By understanding the complex relationship between poverty and psychology, we can work toward breaking the cycle of poverty and promoting financial stability for future generations.
CITATIONS:
[1]: Mullainathan, S., & Shafir, E. (2013). Scarcity: Why having too little means so much. Times Books. https://www.scarcitybook.com/
[2]: Spears, D. (2011). Economic decision-making in poverty depletes behavioral control. The B.E. Journal of Economic Analysis & Policy, 11(1). https://doi.org/10.2202/1935-1682.2973
[3]: Zhang, L., & Leckie, N. (2018). The role of money attachment in the relationship between childhood financial socialization and adult financial capability. Journal of Family and Economic Issues, 39(4), 584-597. https://doi.org/10.1007/s10834-018-9581-0
[4]: Lusardi, A., & Mitchell, O. S. (2014). The economic importance of financial literacy: Theory and evidence. Journal of Economic Literature, 52(1), 5-44. https://doi.org/10.1257/jel.52.1.5
[5]: Conger, R. D., & Conger, K. J. (2002). Resilience in Midwestern families: Selected findings from the first decade of a prospective, longitudinal study. Journal of Marriage and Family, 64(2), 361-373. https://doi.org/10.1111/j.1741-3737.2002.00361.x
[6]: Haushofer, J., & Fehr, E. (2014). On the psychology of poverty. Science, 344(6186), 862-867. https://doi.org/10.1126/science.1232491