Cost of Being Poor

Up until I was able to start paying myself through my ventures I often needed help from my parents for bills and expenses. I had the security to pursue my ventures knowing I wasn’t going to be homeless or the lights were going to get shut off. This economic security is critically important. According to a recent post by Alison Walton in the University of Chicago Business School’s journal, The Chicago Booth Review, poverty can reduce an individual’s IQ by up to 13 points. This is huge because the standard deviation of IQ scores is 15! This means that 98% of people land between an IQ score of 71 and 130, the mean is 100. So if someone started off at 105 (above average), without financial security they would be 93 (below average).

I like to think the simple explanation for this can be derived from the Maslow’s Hierarchy Of Needs Diagram. If economic safety, social belonging and self esteem aren’t achieved then it is difficult to think strategically about your business. This can end tragically, demonstrated by the higher levels of stress and even suicide among entrepreneurs.

Anyone who has been in a situation where you’re half way through the month and don’t know how you’re going to make your rent knows the mental toll it takes. It caused people to make tough decisions and it prevents the ability to think long term. If you have no options to make money legally, some people are forced to make money illegally. Prostitution, drug dealing and theft are all things people do to make ends meet.

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