How Poverty Passes from Generation to Generation

In my post for Blog Action Day last October, I wrote about being broke vs. poverty. Being broke is about making the wrong financial decisions which prevent you from spending for your necessities. Poverty, on the other hand, is the inability to acquire your basic needs because you don’t have access to the education, resources, or opportunities that will allow you to rise above that state. As I concluded in that article, being broke is a choice, while poverty is not.

While it’s true that some people who grew up in poverty were able to rise above it as adults, it is extremely difficult to do so. How come most poor families remain poor generation after generation? New research shows that this all has to do with the effects of stress on a child’s developing brain.

Here’s an article from The Economist exploring the results of a study:

“Children with stressed lives, then, find it harder to learn. Put pejoratively, they are stupider. It is not surprising that they do less well at school, end up poor as adults and often visit the same circumstances on their own children.”
Source: “I am just a poor boy though my story’s seldom told” from The Economist, April 2009

This is all because of a part of the brain called “working memory”. Neuroscientists discovered that the working memories of children raised in poverty are much smaller compared to those who were middle-class. This difference is significant because the capacity of one’s working memory is crucial to one’s development. According to the article, this is what working memory is for:

“[...] Working memory is the ability to hold bits of information in the brain for current use—the digits of a phone number, for example. It is crucial for comprehending languages, for reading and for solving problems.”

When a child grows up in a stressful environment, this stress suppresses the creation of new nerve cells in the brain, as well as shrinks the parts of the brain that are associated with working memory.

The study shows that these negative effects on a child’s brain were explained only by stress, rather than other aspects of poverty such as nutrition, shelter, poor access to quality education, etc. Apart from the lack of financial security, poor people are also stressed for other reasons:

“[...] it is now well established that poor adults live stressful lives, and not just for the obvious reason that poverty brings uncertainty about the future. The main reason poor people are stressed is that they are at the bottom of the social heap as well as the financial one. “

To be clear, the study doesn’t say that poor people are stupid while the middle class and wealthy are smart. What the research reveals is that a stressful environment can prevent the optimal development of a child’s brain, especially when it comes to solving problems, reading, and linguistic abilities. While overcoming poverty isn’t impossible, it can be very, very hard given these circumstances.

The research may not be comprehensive, as it doesn’t address other factors, but it’s a start. The only way we can fight poverty is if we have a concrete understanding of its causes - no matter how complex they are. If you want to read the source article from The Economist, click here.

Image by irum from sxc.hu

What’s new for Frugal Pinoy this August?

Happy Friday everyone! I have a few announcements to make. Mainly, this blog will undergo several changes so if there are bugs or if you see some weird things happening, it’s just me fixing things. Here are the changes you can look forward to for August:

Redesign. I’ll be using a new design for this blog, mainly to add more “breathing room”. Nasisikipan ako sa current design, eh.The new design will be less cluttered.

WordPress upgrade. Frugal Pinoy is built on the WordPress blogging platform. I’m using a very old version, so I’ll be upgrading to the latest version. You won’t notice this because it’s all happening behind the scenes, but there will be tighter security and additional features.

New topics on online careers. One of FP’s features, The Personal Blogging Degree, has become so popular that I’ve been getting requests on creating similar features on other online careers such as freelance writing, web design, consultancy, etc. I’ll be uploading those throughout August, so if you’re looking to learn more about making real money online, you have that to look forward to.

So that’s it for this week. Enjoy your weekend!

5 Reasons why you don’t have any savings

If you manage to save at least a small amount of your paycheck every month, move along and feel free to skip this post. This post is not for you. This is for those people who seem to have a hard time saving their money. If you want to have savings but can’t seem to find it in yourself to set aside even P500 or P1,000 each month, here are the 5 most likely reasons why:

#1: You tell yourself that it’s too hard.

Here’s a solution for you: make it easy. What barriers prevent you from saving money? I’ve written a post about ways to make saving less painful, so you can check that out for more tips. But here are some other suggestions:

• Automate your savings. Call up your bank and ask them if they have options for you to automatically send money each month from your payroll account to a savings account.
• If you find yourself using your credit card everyday on things you don’t need, then leave it at home. Some people even freeze their credit cards in ice, but that’s an extreme (and it probably ruins the card).
• Focus on what’s harder. What’s harder is that if your car breaks down and you don’t have enough money saved up for repairs, forcing you deeper into debt. What’s harder is being laid off from your job and being unable to support yourself and your family until you get a new job. In other words, it’s harder to be in a desperate financial situation without a plan. Believe me, planning is easy. Living through the consequences of not planning is hard.

#2: You don’t know where your money is going.

How much did you spend on utilities each month? How much do you spend on gas/transportation? How much money goes to fun/recreation? If you’re giving the computer monitor a blank stare or you’re just giving an estimate, then you need to start budgeting.

You’re probably shrinking in your seat thinking, “Ick, there’s that B word again.” Relax. The good news is that budgeting is not something you have to do forever. You can forget budgeting after you’ve gotten to the point where you are absolutely sure that you’re spending less than you earn (for example, I know that I’m only spending 1/3 of my income, so I don’t stress about my budget as much).

Should you really budget? Yes. Some people don’t even know it but they’re spending more money than they make. How is it possible? Credit cards and other forms of debt. You’ll never know for sure until you start budgeting and seeing where your money goes.  Here’s the simple way to do it:

• For an entire month, list all of your expenses as you pay. Utilities, rent, that fruit smoothie you just bought. Gather receipts or jot it down in a notebook - do whatever it takes to list where every single peso goes. Credit card and online purchases included.
• At the end of the month, look at all your expenses. Compare how much you spent vs. how much you earned. If you’re spending more than you’d like, separate the things that are necessary and the things that aren’t as important. Bills, food expenses, rent, and transportation costs fall under the first category. Dining out, watching movies, clothes shopping, unnecessary gadgets all fall under the second category.
• Write down your monthly budget, including savings. Now what you know roughly how much you spend, it’s time to allocate specific amounts to each expenditure (including savings). I recommend that you overestimate your expenses, at least by 100 pesos. For example, here’s what my budget looks like:
  • Meralco - P1,600
  • PLDT - P1,800
  • Water bill - P500
  • Drinking water - P200
  • Palengke - P2,000
  • Groceries - P2,500
  • Transportation - P500
  • … and so on.

By the way, if you make, say P30,000 per month, don’t make a budget worth P20,000. Allocate the rest of that money somewhere (including “fun money”) otherwise it goes to frivolities you never really wanted that much in the first place.

Once you get into this habit, it’s going to feel easier and natural. Trust me, it’s worth the initial effort.

#3: You don’t have self-control.

The latest iPhone might sound attractive to you, but is it really worth buying if you’ll be stressing about paying the bills the next month? To cover the costs of this purchase, do you have to work overtime for several months? I’m all for personal rewards and enjoying the fruits of your labor, but the true cost of expensive one-time purchases isn’t just limited to the price tag. Here’s are some tricks I use to curb compulsive spending:

• I ask myself “How many hours of work will it take to pay for this thing?”
• I apply the one-month rule. If I still want something after one month, then I know I really want it. You’ll be surprised at the new gadgets and alternatives that are launched in that month.
• For every expensive frivolity I wanted, I tell myself “Every time I give in to a short-term want, I lose a part of a long-term dream”. (I forgot the original source of this quote, but if you know, please tell me.) What are your dreams? Is it to own a house? To travel the world? To leave the rat race and start your own business? To never worry about money again? Keeping these dreams in mind will allow you to shift your priorities and channel your funds on the long-term things that will give you more security and happiness.

By all means, shower yourself with expensive rewards after you’ve reached financial security, but not before. Until you get there, you should be content with treating yourself to a movie or a meal.

#4:  You don’t have financial goals.
“I want to be rich someday” is not a goal, it’s a wish. It’s a very vague statement that gets you nowhere. How do you define rich? When exactly is “someday”? And, most importantly, why?

Here’s how you make a real goal:

• It must be quantifiable. “Rich” and “financial freedom” are abstract terms. Do you mean “I want to be debt-free and have a net worth of P10M”? Be as clear and precise as possible, otherwise you’re not 100% sure what your goal really is.
• There’s a deadline. When do you need the money you’re saving up for? 30 years from now? 10 years from now? The deadline will allow you to plan for your needs accordingly.
• You know the steps to get there. How do you get to save up for a P50,000 emergency fund? How much can you put away each month? How many months will it take you to get there?
• It must be about things you can control. Winning the lottery is not a goal, neither is getting an inheritance from your wealthy tita.The winning lottery numbers are random, left to chance, and for all you know, your tita changed her will before she died or she has other heirs you don’t know about. On the other hand, getting a raise, adding new income streams, and creating a business are all within your control, at least partially.

#5: You don’t have the time or energy to manage your money.

If you have the time to watch TV, gossip, or aimlessly browse the internet, you have the time to manage your money. You don’t have to do it all in one sitting if you’re feeling overwhelmed. Take 30 minutes today to list the worth of all your bank accounts, then take another 30 minutes the following day to note your remaining debt. The funny thing is, once you’ve set up a system and tried all my recommendations above, it doesn’t take more than an hour each month to manage your money. 

On a final note:

If you have the problems above and you don’t want to fix them or you keep making excuses, that’s fine. It’s your money, it’s your life. Who the heck am I to tell you what to do?

But if you don’t do anything about your money, stop wondering why you’re not able to save.  Stop complaining that you have too many expenses or that you can’t afford the things you want. There’s no shortcut, no workaround to saving.True, you can focus on earning more rather than saving, but you’ll never learn how to manage that extra money until you start looking at your expenses and controlling them. Saving is something you have to do, especially if you’re only becoming financially aware now.

Any tips for those who complain that they don’t have any savings? Please share them in the comments.

Image by woodsy from sxc.hu

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