Ever worried about something like a major car repair straining your budget, only to then fall for the mechanic’s snake oil sales pitch? A team of researchers, which includes psychologists and economists in the US and UK, think that economic pressure leads to poor decision making, and they have a study in Science that supports their idea.
The researchers conducted two tests. In the first, they approached random shoppers in a New Jersey mall and had them think through some financial problems: an “easy” scenario, where the cost of a car repair would be $500, and a “hard” one, where the cost would be $1,500. While they thought through the problems, they were also given IQ tests and other tests that measured attention.
When recording their results, researchers divided their study participants into “rich” and “poor” groups, with the dividing line being the median US household income of $70,000.
In their second test, researchers carried out the IQ and attention rate tests on sugar cane farmers in Tamal Nadu. Prior to the annual harvest, the farmers tend to be poor, but after the harvest, they’re flush.
In both tests, respondents did equally well on the “easy” scenario. However, poorer people (or the very same farmers, who were poor prior to harvest) did badly on the “hard” scenario. In fact, their IQ performance was thirteen points lower while they were thinking about financial problems, which is equivalent to losing a full night of sleep.
This isn’t to say that the poor are inherently less intelligent—it is to say that the state of poverty diminishes mental capacity. Once removed from that state, a person’s mental capacity returns.
So, planning on some hefty decision-making? Perhaps save it for after you’ve solved your fiduciary troubles.