Martins Hile, Editor, Financial Nigeria magazine

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Addressing the psychological impacts of poverty in Nigeria 10 May 2018

Approximately 83.5 million Nigerians or 42.6% of the population are living in extreme poverty, according to data provided by the World Poverty Clock. This has earned Nigeria the ignominious label of "the extreme poverty capital of the world" – a position that was held down previously by India.     
Nigeria's poverty time bomb is made manifest in a number of dimensions. Preeminently, the poor lack access to quality healthcare. As a result, life expectancy in Nigeria stands at 53.1 years, compared to 80.3 in the United Kingdom. Average number of years of education in Nigeria is less than half of the 13.3 mean years of schooling in the UK. Millions of Nigerians who live below the poverty line still struggle to have access to safe drinking water and other important services such as electricity.

As damning as the scale of deprivation in Nigeria is, the psychological consequences of poverty are far worse. The country needs policymakers at the various tiers and branches of government who will be more committed to defusing the 'ticking time bomb' of poverty in all of its dimensions. But a more fundamental strategy should focus on the psychosocial components of poverty. These include the social, mental, and emotional factors associated with being poor.

Studies upon studies have been published, providing evidence that poverty is not just a function of one's material condition. Poverty is also psychological; it affects the way the poor think and make decisions. And based on the evidence suggesting the interrelation of social and psychological factors, the World Bank might need to update its definition of extreme poverty merely as a condition of living below $1.90 per day.

Most people who are poor have had to deal with a number of psychological distress, including shame, or lack of self-worth. An article published by the Association for Psychological Science states that people who deal with “stressors” like low income and discrimination are highly susceptible to physical and mental disorders as well as low IQ scores. The article asserts that the stressful circumstances associated with poverty depress cognitive development.

In 2013, Eldar Shafir, Professor of Behavioral Science and Public Policy at Princeton University, and his colleagues published the results of several experiments in Science magazine. They showed that individuals who were preoccupied with money problems exhibited a decline in cognitive function similar to a 13-point drop in IQ. Before Shafir's findings were published, Columbia University's cognitive neuroscientist, Kimberly Noble, along with other researchers, published a study in 2012, showing that socioeconomic status plays a huge role in brain development. Indeed, other studies have shown that lack of access to books, computers and other cognitive stimuli affects the learning ability of children from poor families.

Poverty also lowers the willingness to take risks. This is particularly prevalent among poor people in developing countries. A time preference experiment with real payoff was conducted in 2008 to measure discount rates for 262 farm households in rural Ethiopia. The discount rate was found to be high on average. In a publication by the Environment for Development (EfD), the researchers stated that when future returns were uncertain, the subjects were risk-averse and, therefore, favoured projects with shorter payback periods. The farmers were less willing to invest in projects with long-term benefits.

This tendency of poor people to be risk-averse in their decision-making was also captured in a report by Johannes Haushofer, a researcher at MIT's Poverty Action Lab. According to him, “Stress makes people risk-averse, and it makes them more short-sighted, in the sense that they are more likely to make decisions that benefit them sooner than in the long term.”

The aversion to risk in investment decisions shown by people living in poverty has serious implications. For instance, making investment that has long-term outcomes such as education might not necessarily be the immediate priority of the poor. "For the poor, costs are losses," wrote renowned Israeli-American psychologist, Daniel Kahneman, in his seminal book, "Thinking, Fast and Slow." The inference is that money spent on an item is the loss of another item that could have been purchased instead. This deprives them the opportunity to earn future incomes, thereby fostering a feedback loop that perpetuates poverty.     

The World Bank says it has a dream of a "World Free of Poverty.” Indeed, there are enough resources in the world to eradicate poverty. Nigeria is also well endowed to be poverty-free. But without understanding the psychological causes and consequences of poverty, programmes designed to reduce privation will lack the efficacy to pull millions of people out of the vicious cycle of poverty.

For any strategy tackling poverty to be effective in Nigeria, there are a number of stereotypes about poverty that need to be dislodged. The poor need social support, not discrimination. Cognitive neuroscience research has disproved the notion that people are poor because they make poor decisions or they don't try hard enough. A similar misconception also fosters the illusion that rich people are smarter and more hard-working. Social support for the poor would necessarily preclude the inclination of some rich people who thumb their nose at the poor. Keetie Roelen, a research fellow at the Institute of Development Studies, said policymakers must understand that "dignity and self-respect are prerequisites in the struggle against privation."

Helping the poor to remove the weight that poverty has on their cognitive function will remove some of the barriers to escaping poverty. This partly requires policymakers to pay close attention to the cognitive development of children, especially those in poor communities. Investment in educational resources and proper training of teachers needs to be ramped up to improve the learning ability of every Nigerian child.