Many people may think that the poor
spend all their money as soon as they earn it, but Portfolios of the Poor by Daryl Collins, Jonathan Morduch, Stuart
Rutherford, and Orlanda Ruthven document how the poor manage their money. They found that the poor are frustrated
by the difficulties they encounter trying to save their money in reliable
ways. Therefore, implementing
financial tools for the poor would improve their lives greatly. To analyze the money management of the
poor, a case study was done on Hamid and Khadeja, a married couple living in Bangladesh. Hamid was a reserve driver of a
motorized rickshaw and Khadeja stayed home, their average monthly income
equivalent to seventy dollars.
Although a fifth was spent on rent and a lot was spent on basic necessities,
about two to thirty dollars a month were saved for minor shortfalls and for
their parents. By closely
analyzing this family, it was found that much more saving is done by the poor
than shows up on large surveys because much of the saving is not done officially
in banks, but through family and at home safe keepings. When the family needs to make a larger
expenditure, the three common courses of action they can take are either, go
without it, raise money by selling assets, or use past or future income to fund
the expense. It is argued that the
poor, due to the uncertainty and irregularity of their income, need financial
services more than anyone else. It
was found that among the author’s sample of 250 families, “no household used
fewer than four types of [saving] instruments during the year.” The concerns the poor face with saving
money is first, the risk factor of disease or bad weather halting their income
and second, the types of things the poor want to buy such as new furniture or
health services, require a large amount of money at one time. The financial diaries proved why the “shift
from an exclusive focus on microcredit to the broader microfinance is an
important and welcome advance.”
Poor households have shown that they would utilize more reliable
financial partners, so we must work to get that for them.