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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Who will win the Copeland by-election?

Labour face a tricky task in holding onto the seat. 

Too close to call, neck-and-neck, down to the wire. Pick your cliché for a close-run thing, and that’s what the parties are saying about Copeland.

No governing party has won a seat in a by-election since 1982, and the seat has been Labour-held since 1935, but the circumstances could scarcely be more favourable to the Conservative Party. They are well ahead in the opinion polls and Labour’s electoral coalition is badly split over Brexit.

To add to the discomfort, Jeremy Corbyn, the Labour leader, has a long history of opposing nuclear power, though he has sounded a more supportive note since becoming leader. Sellafield is the main employer there, so regardless of the national picture, that would be an added complication.

Given the competing pressures from the Liberal Democrats on one side and the Conservatives and Ukip on the other, Labour should expect significant erosion in the 42 per cent of the vote they got in 2015. To win, all the Conservatives have to do is tread water. And it's worth noting that so far in this parliament, the results in by-elections have been what you'd expect according to the current state of the parties in the polls - which would mean you'd back Labour to win Stoke but the Tories to win Coepland. 

That Theresa May has visited the seat attests to the closeness. Privately, neither party can be confident of winning. For the Conservatives, that makes it worth putting Theresa May, currently the most popular politician in Britain if the polls are to be believed, into the fray, because what have they got to lose? For the Labour leadership, there is nothing to "win" if they hold a seat in opposition, but there is something to lose if they cannot hold it and Corbyn has visited in the final week. 

What is keeping Labour competitive is the state of the health service in Cumbria. If West Cumberland, the hospital, is closed, then residents will face a two hour drive to the nearest hospital.

The local “success regime” is the cause of significant public opposition. "There are a lot of people who are angry about Jeremy, angry about Trident [the submarines are made nearby]," says one MP, "But they also understand that if they vote Labour they will not be bringing in a government that closes Sellafield but they can send a message about West Cumberland [the hospital that is under threat of closure]."

So Labour have reason to be more cheerful than the bookmakers are concerned. The outcome will come down to what the question that voters are asking when they vote is: if it is nuclear power, the Tories will win. If it is healthcare, Labour will triumph.

In that, May’s visit has probably helped Labour on balance. She could have decisively shifted the contest by making a commitment to keep West Cumberland open and to secure the future of the Moorside nuclear plant. But she did neither, and instead that meant that the local newspaper splashed on her refusal to confirm that the hospital was safe. Which, in a close election, may well be the difference as far as winning and losing are concerned. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.