We are excited to introduce you to a new feature of our blog. For the next two months, I'll be reviewing the much heralded book, Portfolios of the Poor - How the World's Poor Live on $2 a Day ("POTP"). Every Monday night, I'll read a new chapter and post my commentary here. Why are we doing this?
First, since we launched in October of last year in the U.S, we have kept our eyes on the international market and continue to explore what SaveTogether would look like if we expanded overseas. Secondly, as I dig deeper and deeper into the asset-building community that has been maturing in the United States over the last twenty years and gave birth to the matched savings concept, I have always found myself drawn to the contrasts and comparisons with the international microfinance movement. This is especially so with the relatively recent shift towards microsavings. Finally, I just really wanted an excuse to read this book. And since we recently reached our six month mark as a public platform, I figured it would be time to take a step back and think big picture for a bit. I love all of the day-to-day operations of SaveTogether, but I do miss looking towards a longer horizon.
So, here we go...
By the time, I finished the first chapter of POTP. I realized I wouldn't be able to take this task lightly. There was already a gold mine of fantastic material. I journeyed to the basement, navigated through the cobwebs, and pulled out a legal pad, a pen, and prepared to resharpen my note-taking skills.
In Chapter One, the authors take little time in dispelling the most common misperception about those living on $2/day - namely that they have a fixed income of $2/day. Instead, like many low-income families here in the United States, their income is marked by irregularity and unpredictability. Over time, they may earn $2/day but like a money manager each day is spent re-prioritizing against short-term and long-term horizons. And, in order to effectively manage their portfolios, these families are involved in a high degree of financial intermediation. They actively employ a wide set of tools before them to smooth consumption over time recognizing that they can't survive on current income alone. The authors note that in the 250+ families whose portfolios they analyzed, none of them used fewer than four financial instruments and all of them used savings and debt products of some sort (total cash turnover through these instruments relative to total net income ranged from 75 percent to 500 percent).
When I reflect on the author's findings for our work at SaveTogether, I'm reminded of one of the most common questions we get when we explain that our profiled savers are low-income - How can someone making so little income save anything?* The first chapter of POTP provides the first glimpse at an answer. When we think of low-income families, we commonly view them through a balance sheet perspective. We look at their incomes as snapshots in time and assume that someone making so little now, couldn't save now. But, we fail to recognize a cash flow perspective and the trade-offs that families are already making to put aside consumption now to save. We fail to see the reality that some families are embracing their future and will sacrifice now to enable it. This is a rational response to future expectations.
POTP's authors close their chapter by challenging their readers to recognize these ebbs and flows and the need for the market to develop carefully crafted tools to help families manage this ebb and flow. That is the excitement of this new perspective on our work and the excitement of moving to Chapter 2. See you next week....
* Each of our partner programs has different income eligibility but most of the savers are below 200% Federal Poverty or $22,000 / year for a family of four.