The Real Cost of Scarcity

In their collaboration Scarcity: Why Having Too Little Means So Much, behavioural economist Sendhil Mullainathan and psychologist Eldar Shafir do a deep dive on both the short and long term impact of constantly living with less. Anyone familiar with Operation Hope out of Atlanta could be forgiven for seeing this book as a pretty reasonable explanation for exactly why kids in under-served neighbourhoods never “get the memo”  (on how to create a solid financial future, as Operation Hope CEO John Hope Bryant frequently states). The Gifting Sense blog is hardly the place to summarize 300 pages of behavioural economics and psychology, but we’re attempting to do exactly that because of a question we’ve been asked more than once: “Is Gifting Sense just for kids from upper middle class families?” No! Not at all! In this post we hope to explain why.

One of the things that makes Gifting Sense different is that we meet children, “where they are”, at the very moment they are considering various age-appropriate purchases. And even though in our workshops, we witness children from different economic realities consider different types of purchases, the questions kids answer when calculating the DIMS SCORE® are always the same. Because it doesn’t matter if you are thinking about really fancy running shoes or a really basic calculator, you should understand how much you are likely to use either, and what sales tax and shipping will add to their final cost, before you buy them.

Mullainathan and Shafir would add to our observations, that because children who live with a lot less have to spend so much mental energy on mere survival, juggling if you will, balls in the air like eating, with helping care for siblings or (way, way, down the list), doing homework, they rarely get to practice making choices that can have a longer-term positive impact. Because as they put it, “planning requires stepping back, yet juggling keeps us locked into the current situation…focusing on the ball that is about to drop…”

Mullainathan and Shafir (pictured on the left and right below) conclude that living with scarcity imposes a “bandwidth tax”. (Think about a computer that slows down because you have too many programs running in the background: constantly managing scarce resources takes up so much mental energy, you automatically have less for the rest of the things you are supposed to be doing every day – like learning if you are still in school.) And they believe this “bandwidth tax” is the primary difference between equally capable people being able to make financial decisions that hurt or help their future selves.

The good news? Calculating the DIMS – Does It Make Sense? Score for possible purchases can offer children living with scarcity just the right amount of “rule of thumb” guidance to avoid early financial pitfalls. Anything more involved than “rules of thumb” are just too hard for these kids to adhere to according to Mullainathan and Shafir. But simple reminders to avoid pitfalls can reportedly be incredibly powerful. Which is exactly why we encourage even just regular use of the phrase “What’s the DIMS SCORE?” It’s a simple reminder that there is life beyond the immediate choices families living with less cannot help but be consumed with.

One could be forgiven for seeing this book as a reasonable answer to why kids from income insufficient households “never get the memo” on how to build a strong financial future.

At the very opposite end of the income scale, children who live with “more” can benefit from calculating the DIMS SCORE® for possible purchases because it forces them to practice making the types of trade-offs that their real lives rarely present. (This is referred to as “focus dividend” in behavioural economics.) We also find DIMS SCOREs nicely illustrate the environmental impact of careless spending. But the focus of this post, is once and for all, to hopefully deflate the idea that more carefully considering what they might like to receive for an upcoming birthday or holiday gift, only helps kids with more. We believe the habit of thinking before buying can help children across all economic realities, albeit for different reasons.

How indeed can you “get the (long-term-money-smarts) memo” when your in-box is already stuffed with flyers on how to merely eat, sleep, or get basic school supplies? It’s a lot harder for sure. But simple “Rule of Thumb” reminders to avoid pitfalls can be incredibly powerful. Which is why we encourage even just use of the phrase “What’s the DIMS SCORE?”.

How indeed can you “…get the (long-term-money-smarts) memo…” when your in-box is already stuffed with flyers for possible ways to merely eat, sleep, or get basic school supplies? It’s a lot harder for sure. So let’s roll out some easily absorbed fundamental financial literacy to middle schoolers across the developed world, when they are already sitting in math class, and help particularly children from income insufficient households.

It’s never been easier to teach kids how to think before they buy. Throughout the pandemic, parents and educators have become so much more comfortable with online platforms and processes that they are now introducing kids to DIMS SCOREs themselves, outside of workshops. This is really exciting because they are the best people for the job in any event. Moms and Dads and Teachers know their families and classrooms way better than we do. But don’t worry, we promise to continue delivering our special brand of real life money math until as many middle school students as possible, “get the memo”. The real cost of failing to do so just seems way too high, doesn’t it?

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