Poverty and savings

When discussing consumer spending and household savings, I find that students frequently question why poor people tend to save less. Surely, being more concerned about their future, poor people should be saving more?

A new LA Times article sheds light on why the poor save less in general, and makes useful reading for reflecting on using experimental research in economics, as well as household savings and the MPC.

"The results add a layer of complexity to economic theories of poverty, Shah said. It's not that people living in poverty don't save or tend to ignore the future; they just see things differently.

"If you look at the data, you see that low-income individuals do save, but they save a little differently," he said. "They save for specific expenses — for an appliance or for their kid's wedding. They're saving because their attention has shifted to a particular problem that is out there.""

I find this ties in nicely with a discussion of the implications for the impact on AD of an increase in income taxation. A discussion of how the impact varies depending on the income of the people affected provides a very useful source of evaluation.