Several studies have looked into the effects that a lack of money and poverty can have on the brain. Poverty is like any other vicious circle that needs breaking: if we do nothing about it, it usually never ends, and it also tends to get worse. Let’s say it’s like a chronic illness that can end up being terminal if left untreated.
Although I don’t remember which psychologist carried out this study, I do remember that it was in 1995. It took several people who had belonged to the upper-middle class and who, after various financial setbacks, had lost practically everything and were left in debt.
The study showed how, after a time unable to escape this situation, these people who had gone from semi-rich to poor had seen their cognitive ability shrink to unimaginable levels, and it was even as if their IQ had dropped dramatically.
They were much more impulsive and had what was called “tunnel vision”, a cognitive bias found in most poor people (we’ll explain it in a moment).
In other words, they were the “new poor” and acted like it, though with the added disadvantage of having been on the other side, in that world of plenty.
Tunnel vision is what makes a person perceive only one aspect of reality. Their life now centres solely on a light they see at the end, but they see nothing of what surrounds them that could help them reach that light more quickly. They tend to exaggerate and/or distort the reality they perceive. More than a cognitive bias, tunnel vision belongs among the cognitive distortions, like extreme fatalism.
See also: Why the poor keep getting poorer and the rich keep getting richer
How does tunnel vision work in most poor people?
There are two kinds of poor people:
- The person who is poor and has no plans to change anything. They have accepted it.
- The person who is poor and wants to get out of poverty. In fact, they are certain they will escape it, but they aren’t willing to learn everything it takes to do so. This is the kind of person that Emilio Duró (a Spanish motivational speaker) called “a motivated fool”.
There is a third kind of poor person, one who is clear about wanting to escape poverty and is willing to work hard and learn everything necessary. This person is only passing through. They are probably just temporarily poor.
The real secret to success in personal finance lies in financial and emotional intelligence. So when a person who is short of money but has adapted to it (the poor person in case 1) gets a stroke of luck (a sum of money), they always look for a way to spend it on a luxury they have never allowed themselves.
The motivated fool (the poor person in case 2), on the other hand, tries to make that money grow, because they have heard that money should be invested, whether in the stock market, in businesses or even in Bankia preferred shares (a product sold to retail savers in Spain). Tunnel vision combined with financial ignorance makes them focus on quick returns.
Because they haven’t prepared properly, this is usually the kind of person who, after receiving a juicy sum of money, decides to start their own business or invest in the stock market with no experience, and within a few years ends up even worse off than at the start.
See also: The 4 most notable differences between how the rich and everyone else think
But what if the stroke of luck never comes?
Going back to the study by these psychologists, they found that the brains of the poor were very poorly trained. It wasn’t that they were poor because they weren’t intelligent; rather, having no aspirations or motivation, along with a lack of interest in learning, caused their brains to stagnate. And one thing led to another.
And there’s an explanation for it, because you often hear: “Why should I learn about finance if I have no money to invest? When I have money, I’ll learn.” Perhaps this person, with a little interest in financial education, could discover that they can cut €200 of monthly expenses and invest that small amount each month in a low-risk product, multiplying their money exponentially over the next five years to levels they can’t even imagine right now.
Thomas Corley, author of Rich Habits, whom we mentioned in our article “10 ways the rich think differently“, found that part of the secret of great entrepreneurs, businesspeople and billionaires was on their bedside table (and no, it wasn’t their partners): books.
But… what books do the poor read, and what books do the rich read?
Corley found that the rich don’t read entertainment books or novels, but instructive, useful books that teach them to improve as people, as entrepreneurs, as leaders, and so on.
In other words, instead of reading Fifty Shades of Grey, they would probably be reading 50 Ways to Make 50 Million.
But in the end, we’re left with a chicken-and-egg question, because what is clear is that millionaires have certain habits that everyone else lacks.
See also: 12 things millionaires know
Featured image: Eric Kilby from Somerville, MA, USA, CC BY-SA 2.0, via Wikimedia Commons.
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