Wednesday, September 2, 2009

Living on a $1 a Day

Anyone interested in development economics should read the paper "The Economic Lives of the Poor" by Abhijit Banerjee and Esther Duflo (linked here). Its been out for a few years but the paper will become a classic. In 22 pages it gives a great sense of how families who live on less than a $1 a day per person spend their money (mostly on food but also on alcohol/tobacco, weddings, and funerals) and why they can't escape poverty. There is no math involved too.

I really liked this section on why it is so hard to save.

... saving at home is hard: The money may be stolen (especially if you live in a house that cannot be locked) or simply grabbed by your spouse or your son. Perhaps equally importantly, if you have money at hand, you are constantly resisting temptation to spend:. to buy something you want, to help someone who you find difficult to say no to, to let your child have the sweet he wants so badly. This is probably especially true of the poor, because many of the temptations you are being asked to resist are things that everyone else might take for granted.

But you don't have to take my word for it...

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