Chapter 26: Living in poverty, understanding financial behavior of vulnerable groups Flashcards
What are the 3 definitions of poverty?
(1) Material definition of poverty –> household cash flow, assets and liabilities
(2) subjective definition of poverty –> The perception of poverty regarding a sense of material deprivation or feelings of financial distress
(3) Economic psychology definition –> A gap between one’s needs and the resources available to fulfill them. = more board, less dependent of geography
What can be said about characteristics of financial behaviour of low-income individuals (5)?
(1) Play more lottery
(2) Overlook available social services
(3) Neglect home maintenance
(4) fail to save for emergencies/retirement
(5) borrow from high-interest, alternative financial services
What can be said about the financial environment of low-income people? (2)
(1) They have a large number of alternative financial services
(2) They are considered stressfull (more crime, less health care, less social support systems)
What can be said about the financial literacy of low-income people? (4)
(1) Low-income households are good ad daily finance management such as budgeting and managing credit constraints
(2) They have difficulty with financial planning and lack knowledge of larger scope policies/procedures and financial services
(3) Low income woman lack retirement planning
(4) Lower access to online financial information and less skill in using online financial services
What can be said about resource scarcity and low-income people? (5)
(1) Attentional neglect –> their main focus is making it through today, thus they tend to pay little attention to other stuff such as home repairs which, in the long run, can cost a lot of money
(2) Scarcity creates a focus on immediate and pressing expenses and encourages the tendency to borrow
(3) People are too tired to worry about other things
(4) A lot of mental constraints, urgent strain for making ends meet
(5) interventions focusses on: simplifying tasks and carefully time, default settings and nudges for planning
What is the relation between low-income and decision making?
Low income leads to short-sighted risk averse decisions, limited attention and a preference for habitual behaviors
Why are older people a vulnerable population group regarding low-income?
(1) Older people might have difficulty adjusting to lower pension income, higher costs for medical stuff, thus financial difficulties in older ages are expected to intensify
What are 2 concerns of lifetime mortgages / home reversion mortgages?
(1) They tend to be more expensive compared to other home loans
(2) It requires more financial skill and planning due to the option of taking a lump sum payout rather than a line of credit
Why are children of low-income families doubly disadvantages? (2)
(1) Parents pay little attention to their children regarding their level of financial literacy
(2) Adults of low-income families tend to use fewer mainstream financial services, thus exposing children more to limited varieties and fewer opportunities to practice financial behavior
Why are single mothers a vulnerable group for low-income (3)?
(1) The association between financial distress and wellbeing is stronger for single moms
(2) Single moms are less likely to be employed fulltime or tend to work in lower-paid professions
(3) Single moms have limited social networks, making them ore vulnerable for financial shocks
