FAIR Money dedicates itself to citizen anthropology, combining a commitment to objective observation with a highly opinionated, political stance that flows from the group’s understanding of and empathy with those who find themselves in difficult financial waters as a consequence of decades of organized redistribution of wealth to the most affluent and powerful in U.S. society.
Anna Bahr presents an analysis of the impact of Obama’s recent “Pay as You Earn” legislation, suggesting that it might really stand for PAY Extra. According to Bahr, “PAYE tends to save money only for those low-income borrowers who have incurred an unusually large federal debt.” Bahr offers a few examples of people with more usual loan amounts, who would actually pay more under PAYE than under current rules, because as they repay more slowly they will incur more interest on their outstanding loans.
According to Susan Dynarski and Judith Scott-Clayton, the FAFSA could consist of just 2 questions and more people would manage to go to college and stay there until they get their degree (The Cost of Complexity in Federal Student Aid).
I have a lot of other questions. For instance, what would happen then? Would we have more college grads with good jobs and solid prospects? Or would we have even more young adults with staggering educational debt and a hard time finding a halfway decent job? It’s instructive to consider the post-graduation realities laid out in It’s Official: The Boomerang Won’t Leave. According to that article, “more than half of recent college graduates are unemployed or underemployed, meaning that they make substandard wages, in jobs that don’t require a college degree.”
One last question: how do you fix that?
Maria Konnikova has an excellent article in the New York Times today, entitled “No Money, No Time: The Poor Are Under a Deadline that Never Lifts.” She sums up the experimental work of Sendhil Mullainathan and Eldar Shafir on the effects of poverty and works her way backwards to reality, applying their conclusions to the lives of the people at the bottom of the heap. In the lab, people in artificially induced states of poverty perform worse than people operating under conditions of abundance. Mullainathan and Shafir also conclude that they tend to solve for the present moment more–meaning they borrow, handicapping their future performance.
Mullainathan and Shafir decompose poverty into three components: lack of money, lack of time, and lack of bandwidth (by which the mean the ability do dedicate sufficient mental resources to any given problem so as to make good decisions). Their argument is that a lack of money correlates with a lack of time in the real world, and that both conspire to reduce available bandwidth for decision-making.
Shafir recommends designing programs to reduce bandwidth demands and uses the FAFSA as an example:
“If I give people a very complicated form, it’s a big demand on cognitive capacity,” Mr. Shafir says. “Take something like the Fafsa” — the Free Application for Federal Student Aid — “Why is pickup for the low-income families less than 30 percent? People are already overwhelmed, and you go and give them an incredibly complicated form.”
To him, the obvious conclusion is to radically change our thinking. “Just like you wouldn’t charge them $1,000 to fill out a form, you shouldn’t charge them $1,000 in cognitive complexity,” he says. One study found that if you offer help with filling out the Fafsa form, pickup goes up significantly.
Interestingly, their work also seems to support one of the tentative findings from FAIR Money’s Payday loan study, that talking about one’s situation, even if only to a researcher who offered no comment, seemed to have an effect on decisions about how to handle one’s financial dilemmas. By paying people to participate in our study and talk about their situation, we paid them to take time to reflect, alleviating some of the pressure on two of those three dimensions of poverty.
The Economic Policy Institute calculates that in 2010, six members of the Walton family siphoning profits from the Walmart empire were together worth $89.5 billion. That amount of wealth is equal to the total value held by the bottom 41.5% of Americans, a staggering 48.8 million US households.
2014 marks the anniversary of LBJ’s War on Poverty. 50 years later, in a series on American hardship, Trip Gabriel writes about entrenched rural poverty in his article “50 Years Into the War on Poverty, Hardship Hits Back”. The article is a heartbreaking look at how government has failed the rural poor in Appalachia, a place where economic opportunities are scarce and roughly 47% of the population relies on social security as their only personal income. Their story reflects that of many, disenfranchised and disinvested in across the United States, as the Unconditional War on Poverty waned in popularity, leaving young people with little hope and few options. As Donald Bolden, quoted in the article, says, “‘Ain’t that a shame: I’m 30 years old and carrying my life around in a backpack.’”
Evan Mandery points out that so-called “legacy” preferences in college applications can be worth about 150 points on the SAT’s to the privileged applicant whose privileged parents got in to the elite schools before the competition got really stiff. I think non-legacies should start thinking about bringing suit for being excluded unfairly despite their own hard work.