Nav: Home

Trust in local community leads to better long-term decisions among the poor

April 13, 2017

Escaping cycles of poverty may depend on how much a person feels he or she can rely on their local communities, according to research led by Princeton University.

Published in the Proceedings of the National Academy of Sciences, the study finds that low-income individuals who trust their communities make better long-term financial decisions. This is likely because citizens rely on friends and neighbors for financial support, rather than quick fixes, like payday loans, which further indebt them.

The findings show the importance of building strong communities, especially for low-income individuals. The researchers suggest moving away from a focus on low-income individuals, instead focusing on low-income communities through targeted policies.

"Instead of cutting funding to community development programs, policymakers should implement changes that give individuals in low-income communities more opportunities to develop community trust," said study co-author Elke Weber, the Gerhard R. Andlinger Professor in Energy and the Environment and professor of psychology and public affairs at Princeton University's Woodrow Wilson School.

In addition to Weber, the study was conducted by lead author Jon Jachimowicz, Columbia University; Salah Chafik, Columbia University; Sabeth Munrat, BRAC (an international development organization in Bangladesh); and Jaideep Prabhu, University of Cambridge.

To determine why low-income individuals tend to make more myopic (or short-term) financial decisions, the researchers conducted a series of studies, focusing on both the United States and Bangladesh.

In the first study, the researchers invited 647 participants from the United States to make several choices between "smaller, sooner" and "larger, later" options, taking into account participants' incomes and how much they trusted their local communities. They found that richer participants were generally less likely to make harmful short-term decisions than those with lower incomes, but that this only applied to low-income individuals who did not trust their communities. In contrast, those low-income individuals who trust their communities more made financial decisions that were very similar to those made by richer participants.

"Current financial dilemmas are stressful and leave people with no option but to choose immediate solutions. Our results indicate that lower-income people are less likely to invest in the long-term because of their immediate financial needs," said Weber. "This is in line with work by Princeton's Eldar Shafir and others: that scarcity leads to harmful long-term decision-making."

In the second study, the researchers evaluated "payday loans" in the United States, which carry high interest rates and exacerbate cycles of poverty among the poor. After reviewing the Federal Reserve Board's Survey of Household Economics and Decisionmaking, the researchers found that fewer payday loans were taken out in communities where levels of trust were higher. This is because individuals can rely on their communities to help with financial needs (taking out a loan from a friend, for example), instead of resorting to high-interest emergency loans, the researchers said.

In the final part of the study, the researchers turned their attention to Bangladesh, where they conducted a two-year field study. Together with BRAC and The Hunger Project, a global nonprofit organization, the researchers worked with 121 of Bangladesh's smallest local government units, known as council unions. They trained community volunteers to act as intermediaries between local government and community residents. Volunteers met with members of their community and helped provide them with access to public services. Volunteers also provided guidance to government units directly.

When comparing the unions with community volunteers to those without, the researchers found the two groups differed widely in their levels of community trust. Residents with community volunteers had higher levels of community trust, which also influenced their decision-making. These individuals were more likely to forgo smaller payoffs in exchange for more-profitable, delayed options.

Taken together, the findings highlight the importance of building trust in low-income communities. The findings also point to the benefits of programs currently targeted for budget cuts by the Trump administration, the researchers said.

"The Trump administration's preliminary federal budget for 2018 recommends eliminating the $3 billion Community Development Block Grant, a program established in 1974 to help communities address a wide range of their development needs," said Jachimowicz. "The budget blueprint reasons that the program is 'not well-targeted to the poorest populations and has not demonstrated results.' The evidence presented in our paper contradicts this claim, and suggests eliminating this line item could lead to devastating consequences, particularly for those on low incomes."
The paper, "Community trust reduces myopic decisions of low-income individuals," was published online in PNAS on April 11. This research was made possible in part by a Cambridge Judge Business School small grant, the research facilities provided by the Center for Decision Sciences at Columbia University and the support of the German National Academic Foundation.

Princeton University, Woodrow Wilson School of Public and International Affairs

Related Trust Articles:

Study: While trust is inherited, distrust is not
Research has shown that how trusting a person is may depend, at least in part, on his or her genes.
People who trust their doctor tend to feel better
Confidence in doctors, therapists and nursing staff leads to an improvement in subjectively perceived complaints, satisfaction and quality of life in patients.
A trust gap may hinder academic success for minorities
Middle school students of color who lose trust in their teachers due to perceptions of mistreatment from school authorities are less likely to attend college even if they generally had good grades, according to psychology research at The University of Texas at Austin published in the journal Child Development.
Trust issues: Users more gullible when they customize their technology
Technology may have helped turn users into their own information gatekeepers, but they may not necessarily make better, more informed decisions with that data, according to researchers.
Trust fosters networking and knowledge sharing
A group of researchers from the Niels Bohr Institute have examined how a communication network can arise within a new experiment called Expert Game.
When it comes to empathy, don't always trust your gut
Is empathy the result of gut intuition or careful reasoning?
In doctors we trust -- especially when they admit to bias
A doctor's guidance may reassure us more than we realize --especially if she says she is likely to recommend treatment in her field of expertise, known as 'specialty bias.'
Reported data on vaccines may not build public trust or adherence
The Vaccine Adverse Event Reporting System (VAERS) is a national vaccine safety reporting system that collects information about possible side effects that may occur after inoculation.
Getting to Denmark: Trust is key
Trust may explain the good state of Danish economy and the country's successful welfare society.
Trust your aha! moments, experiments show they're probably right
A series of experiments showed that sudden insight may yield more correct solutions than using gradual, methodical thinking.

Related Trust Reading:

Best Science Podcasts 2019

We have hand picked the best science podcasts for 2019. Sit back and enjoy new science podcasts updated daily from your favorite science news services and scientists.
Now Playing: TED Radio Hour

Do animals grieve? Do they have language or consciousness? For a long time, scientists resisted the urge to look for human qualities in animals. This hour, TED speakers explore how that is changing. Guests include biological anthropologist Barbara King, dolphin researcher Denise Herzing, primatologist Frans de Waal, and ecologist Carl Safina.
Now Playing: Science for the People

#SB2 2019 Science Birthday Minisode: Mary Golda Ross
Our second annual Science Birthday is here, and this year we celebrate the wonderful Mary Golda Ross, born 9 August 1908. She died in 2008 at age 99, but left a lasting mark on the science of rocketry and space exploration as an early woman in engineering, and one of the first Native Americans in engineering. Join Rachelle and Bethany for this very special birthday minisode celebrating Mary and her achievements. Thanks to our Patreons who make this show possible! Read more about Mary G. Ross: Interview with Mary Ross on Lash Publications International, by Laurel Sheppard Meet Mary Golda...