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Why Do Poor People Make Bad Decisions?

profileMing Feng

” If you are poor at 35, you deserve it.” – Jack Ma

source: quotefancy

While that quote works very well as an inspirational quote, it may not be an accurate reflection of what poor means today.

It is easy to look upon a cash-strapped family and conveniently blame the poor decisions they make as the reason for their plight.

Yet, when placed in the same situation, many will end up committing the same mistake of making the same poor decision. All this, proven by research.

How poor are Singaporeans?

Income percentileAverage Household IncomeAverage Household Expenditure
1st - 20th$2,071.22$2,285.30
21st - 40th$5,427.98$3,622.07
41st - 60th$8,581.92$4,813.37
61st - 80th$12,568.65$5,726.06
81st - 100th$25,141.40$7,752.21
  • The lower 20% Singaporean earners are earning less than their monthly expenditure.
  • Whereas, for the higher income earners, their monthly expenses are not even 1/3 of whatever they earn.

This is an example of how the rich get richer.

It may be hard to imagine how it feels like to be earning less than your monthly expenses, but here are some ways that poor people make bad decisions.

Put yourself in their shoes where you can hardly make ends meet to understand these decisions better.

Ways that low-income Singaporeans may be making poor decisions


An EZ-link card is sold at $12 at TransitLink Ticket Offices, Concession Card Replacement Offices and Passenger Service Centres. Of which, $7 is the stored value for use, and the remaining $5 is the cost of the card and it is non-refundable.

EZ-Link cards sold at 7-Eleven cost $10, out of which $5 is stored value for use.

For someone with difficulty paying for their basic needs, $12/ $10 can be a steep amount to folk out. They hence, end up paying for one-time transport passes which are more expensive in the long run.

Bulk buying economies of scale

Buying goods in bulk creates an economy of scale which lowers the cost per unit of goods.

This applies to grocery shopping too.

  • A pack of 10 toilet rolls costs $7.25. This makes the cost of each roll of toilet paper $0.725.
  • A pack of 30 toilet rolls costs $17.95. Getting toilet paper in bigger bulk reduces the cost of each toilet roll to $0.60.

The same theory applies to almost all the groceries and daily necessities.

For someone whose aim is to get toilet paper without expanding much of his liquid cash, they end up making the irrational decision of getting a 10 toilet roll pack.

Society vs less well-off Singaporeans

Society today is fundamentally more hostile towards individuals that are less well-off.

This might have forced less well-off to “conceal” by spending beyond their means just to look average.

According to Credit Counselling Singapore, debtors who overborrowed typically carry S$100,559 of personal debt on average when their household income is only S$3,359 on average.

Breaking the modern day poverty cycle through 4D and TOTO

Unlike the past, modern-day poverty is less obvious.


In fact, for the first 20 years of our working life, this is the cycle we are in:

  • Student, housing loans pile up
  • Start to earn Salary
  • Increase the standard of living, expenses
  • Start a family and kids
  • Enter into more debt as a family unit increases cost (healthcare included)

For someone earning a comfortable salary, this cycle works.

For the lower income earner when the income from work is insufficient, they turn to instruments that they are familiar with to break the poverty cycle.

Such instruments include high risks activities such as 4D, TOTO or even heading to the casinos. For TOTO and 4D, the barrier of entry is rather low, for as low as S$1, making it an easy instrument, in hope of break the poverty cycle overnight.

Insurance coverage is the least of their concerns

When forced to choose between paying the premium for an insurance policy, or spending the money on the next meal, the choice is obvious.

With insufficient coverage, any future implications will erode a bigger portion of one’s wealth.

We can go on and on about how poor people make bad decisions:

  • Eating food that is poor in nutrients, resulting in higher medical costs in future
  • Getting prepaid when they can be better off applying for a monthly telco plan and many more

Further reading: How can being poor decrease your IQ?

A quick lookup on some of the statistics will indicate a few things:

  • The poor borrow more
  • The poor save less
  • The poor smoke more
  • The poor exercise less
  • The poor drinks more
  • The poor eat less healthy food

In fact, poverty decreases one’s IQ by 13-14 points due to their mind constantly being preoccupied with worries of the plight they are in. Immediate concerns such as bills, costs of next meal constantly preoccupies their mental capacity to do anything complex which can be crucial to them escaping from the poverty cycle.

This is on top of society’s prejudice, which automatically categorises poor people as “dumb”.

Even further reading: The test

Anandi Mani, a research fellow at the Centre for Competitive Advantage in the Global Economy at the University of Warwick, suggests that small interventions at appropriate moments to help poor people access services and resources could help them break out of the poverty trap.

Her team carried out two sets of tests.

The first test:

  • They approached around 400 people at random in a shopping mall in New Jersey
  • Volunteers were given a scenario, where the cost of a car repair was around $150, and another scenario, where the repair would cost more like $1,500.
  • While they thought about this, the volunteers took part in puzzle-based IQ tests and tasks that measured their attention.
  • The researchers compared the change in performance in the tests for rich and poor people across the two scenarios, with rich and poor defined as being either side of the median US household income of $70,000 per year.

The first test result reveals that low income scored considerably lower when it comes to the S$1,500 repair job question.

In the second test:

  • The team carried out IQ and attention tests on 464 sugar cane farmers in Tamil Nadu in India
  • The did the test on the farmers before the received their annual crop earnings (when they are poor)
  • And they did the test after they received their annual crop earnings (when they are richer)

The second test result reveals that when the farmers were comparatively poor, they scored substantially worse for the tests.

They were still the same Indian sugarcane farmers, indicating that being less well-off compromises one’s mental bandwidth.

About Ming Feng
A stint in Bloomberg gifted me with a beer belly, which only grew larger when I moved on to become a Professional Trader. Now I turn caffeine into digestible finance-related content.
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