Tracing families? escape from poverty
Thursday, January 20, 2011
For all the detailed tools developed to study finance in past decades, relatively few scholars have brought those methods to bear on a pressing social question: How do poor people manage their finances?
Now, a long-term study of the poor in small villages in Thailand is shedding light on the issue. Having a sound financial strategy, including a commitment to saving money, has a large impact on lifting families out of poverty, the research reveals. Moreover, advances in wealth are linked to highest level of education obtained by a household member, as well as a willingness to try new ventures.
The study, based on a unique set of data collected under the direction of MIT economist Robert M. Townsend, shows that among rural households, 43 percent realized significant and lasting gains in net worth over a seven-year period, and that 81 percent of that wealth accumulation was due to savings of income, as opposed to gifts or remittances, that is, contributions the family did not earn.
“There is not a poverty trap in these Thai villages,” says Townsend, the Elizabeth and James Killian Professor of Economics at MIT. “There are strategies people can pursue to increase their relative wealth.”