Michael Gove is right: some poor families do budget badly - but it's not their fault

As the new book Scarcity shows, a severe lack of money systematically impairs our ability to focus, make decisions and control our impulses.

On Monday Michael Gove landed himself in hot water when, after visiting a food bank in his Surrey Heath constituency, he claimed that the financial pressures which force people to go to food banks "are often the result of decisions that they have taken which mean they are not best able to manage their finances."

The implication of this is that some families run out of money, and thus need to resort to food banks, as a result of their own, avoidable, error. Needless to say, this caused quite a controversy and Labour was quick to denounce his comments as "insulting and out of touch".

So, who is right? Are some families failing to make sensible budgeting decisions, or are they blameless? A new branch of psychology suggests that, paradoxically, both of these answers may be true. Scarcity, a new book co-authored by Eldar Shafir, a Princeton psychologist, and Sendhil Mullainathan, an economist from Harvard, investigates how the feeling of having too little affects the way we think. They report experiment after experiment demonstrating that a severe lack of time, friends, or money, systematically impairs our ability to focus, make decisions and control our impulses. All pretty important skills when you’re trying to develop, and stick to, a tight budget.

Their findings are remarkably general, and the effects are severe. In one study they found that prompting poor people to think about money before conducting a reasoning task reduced their cognitive abilities by about the same amount as missing a whole night’s sleep. This is a remarkable finding - I probably couldn’t tie my own shoelaces in the morning if I missed a whole night's sleep.

What’s worse, the feeling of scarcity causes us to focus on our most pressing needs, to the point that we disregard less immediate concerns. This 'tunnelling effect', for which Shafir and Mullainathan present a wealth of evidence, helps explain why the poor, be they in Manchester or Mumbai, regularly take out payday loans at exorbitant interest rates. Considerations about the additional costs of paying back the loan fall 'outside of the tunnel”, and en; up dragging people into further financial trouble, trapping them in scarcity.

And here's the real kicker; when otherwise rich and successful people have scarcity imposed on them in a controlled experiment, they show very similar reductions in cognitive capacity. The poor don’t make these decisions because they are short-sighted, or lazy. The very fact that they are poor causes them to behave in predictably irrational ways. In other words, if Michael Gove was as hard up as some of his less fortunate constituents, he would be just as likely to end up at the food bank as the result of his own, avoidable, budgeting errors.

To be fair to Gove, he made his incendiary remark as part of a more constructive point about the need to provide education in household budgeting and finance. But this misses the point. It’s not that poor people don’t know how to budget, in fact they have far more experience of managing a tight budget than the rich. The problem is the temporary reduction in cognitive capacity bought about by being hard-up. The authors argue that this makes traditional financial management courses particularly inappropriate. People who are consumed with worry about how they will pay the next bill are simply not in the right frame of mind to take a module on double-entry book keeping. Far better, perhaps, would be to design policies and financial tools in a way that takes into account the effect of scarcity on how we think.

Some hard-up families probably do make bad budgeting deisions; but it’s hardly their fault.

Sam Sims is a researcher at the Institute for Government

Michael Gove at last year's Conservative conference in Birmingham. Photograph: Getty Images.

Sam Sims is a researcher at the Institute for Government

Photo: Getty
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Shadow Scottish secretary Lesley Laird: “Another week would have won us more seats”

The Labour MP for Kirkcaldy and Cowdenbeath on the shadow cabinet – and campaigning with Gordon Brown in his old constituency.

On the night of 8 June 2017, Lesley Laird, a councillor from Fife and the Labour candidate for Kirkcaldy and Cowdenbeath, received a series of texts from another activist about the count. Then he told her: “You’d better get here quick.”

It was wise advice. Not only did Laird oust the Scottish National Party incumbent, but six days later she was in the shadow cabinet, as shadow Scottish secretary. 

“It is not just about what I’d like to do,” Laird says of her newfound clout when I meet her in Portcullis House, Westminster. “We have got a team of great people down here and it is really important we make use of all the talent.

“Clearly my role will be facing David Mundell across the dispatch box but it is also to be an alternative voice for Scotland.”

At the start of the general election campaign, the chatter was whether Ian Murray, Labour’s sole surviving MP from 2015, would keep his seat. In the end, though, Labour shocked its own activists by winning seven seats in Scotland (Murray kept his seat but did not return to the shadow cabinet, which he quit in June 2016.)

A self-described optimist, Laird is calm, and speaks with a slight smile.

She was born in Greenock, a town on the west coast, in November 1958. Her father was a full-time trade union official, and her childhood was infused with political activity.

“I used to go to May Day parades,” she remembers. “I graduated to leafleting and door knocking, and helping out in the local Labour party office.”

At around the age of seven, she went on a trip to London, and was photographed outside No 10 Downing Street “in the days when you could get your picture outside the front door”.

Then life took over. Laird married and moved away. Her husband was made redundant. She found work in the personnel departments of start-ups that were springing up in Scotland during the 1980s, collectively termed “Silicon Glen”. The work was unstable, with frequent redundancies and new jobs opening, as one business went bust and another one began. 

Laird herself was made redundant three times. With her union background, she realised workers were getting a bad deal, and on one occasion led a campaign for a cash settlement. “We basically played hardball,” she says.

Today, she believes a jobs market which includes zero-hours contracts is “fundamentally flawed”. She bemoans the disappearance of the manufacturing sector: “My son is 21 and I can see how limited it is for young people.”

After semiconductors, Laird’s next industry was financial services, where she rose to become the senior manager for talent for RBS. It was then that Labour came knocking again. “I got fed up moaning about politics and I decided to do something about it,” she says.

She applied for Labour’s national talent programme, and in 2012 stood and won a seat on Fife Council. By 2014, she was deputy leader. In 2016, she made a bid to be an MSP – in a leaked email at the time she urged Labour to prioritise “rebuilding our credibility”. 

This time round, because of the local elections, Laird had already been campaigning since January – and her selection as a candidate meant an extended slog. Help was at hand, however, in the shape of Gordon Brown, who stood down as the MP for Kirkcaldy and Cowdenbeath in 2015.

“If you ever go out with Gordon, the doors open and people take him into their living room,” says Laird. Despite the former prime minister’s dour stereotype, he is a figure of affection in his old constituency. “People are just in awe. They take his picture in the house.”

She believes the mood changed during the campaign: “I do genuinely believe if the election had run another week we would have had more seats."

So what worked for Labour this time? Laird believes former Labour supporters who voted SNP in 2015 have come back “because they felt the policies articulated in the manifesto resonated with Labour’s core values”. What about the Corbyn youth surge? “It comes back to the positivity of the message.”

And what about her own values? Laird’s father died just before Christmas, aged 91, but she believes he would have been proud to see her as a Labour MP. “He and I are probably very similar politically,” she says.

“My dad was also a great pragmatist, although he was definitely on the left. He was a pragmatist first and foremost.” The same could be said of his daughter, the former RBS manager now sitting in Jeremy Corbyn's shadow cabinet.

Julia Rampen is the digital news editor of the New Statesman (previously editor of The Staggers, The New Statesman's online rolling politics blog). She has also been deputy editor at Mirror Money Online and has worked as a financial journalist for several trade magazines. 

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