This post is part of a series about Poverty Interrupted, ideas42’s groundbreaking effort to bring a behavioral science approach to the problem of intergenerational poverty.

Imagine that your car is having some trouble and it will cost $150 in service to take care of the problem. Unfortunately, your insurance will only cover 10% of this cost. Your next step will require choosing from the following:

  1. Pay the full amount in cash.
  2. Take out a loan.
  3. Take a chance and hope that the car lasts for a while longer.

Which option would you choose in this situation? How would you go about making the decision? Would it be an easy or difficult choice?

What if instead of $150 in service costs, repairs will cost $1,500? Does this change your answer?

Stop and contemplate this for a few seconds. What effect, if any, do you suppose thinking through these hypothetical scenarios has on your intelligence, cognition, and working memory—or, to put it another way, your IQ?

The answer, it turns out, depends somewhat on your current socioeconomic status. In the $150 repair scenario, people with both high and low incomes perform equally well on a subsequent cognitive test. When faced with the hypothetical $1,500 scenario, however, cognitive performance diverges. Wealthy individuals perform just as well as both groups did in the low-cost scenario, but those with low incomes experience a decrease in cognitive performance equivalent to a 13 point temporary drop in IQ (Such a dramatic shift in IQ is enough to move a person from the “superior” IQ category to “average” or from “average” to “borderline deficient,” depending on the starting point).

To understand what’s going on here, think about the role of financial “slack” in your answers to the questions posed earlier. If you’re relatively stable financially, your mind likely went immediately to a savings account or credit card that could be used to cover the repair expense. While it would be unpleasant to pay that amount, it probably wouldn’t ruin you financially. Individuals getting by on low incomes, on the other hand, typically don’t have any such slack. Without a safety net in the form of savings or affordable credit to fall back on when crises arise, unforeseen expenses trigger “tunneling” where the brain hones in on the very thing you do not have (in this case, $1,500), and little mental “bandwidth” or capacity remains for other tasks. If that tunneling throws you off a simple cognitive measurement task, imagine the repercussions if you have important real life decisions to make.

Such tunneling is an important effect of scarcity, the experience of not having enough of a key resource. When unexpectedly faced with needing a large sum of money, those living in poverty are immediately flooded with concerns about having enough to cover the bill. How can I pay for it without overdrawing my bank account? Which, if any, friends or family members can I borrow money from? Should I take out a payday loan and put yet another strain on my already tight budget? With these worries at the forefront, it’s little wonder that people do not perform at their cognitive best.

So what does all of this tell us? First, it tells us that wealthy and not-so-wealthy individuals have, on average, the same inherent level of intelligence (as shown by the $150 scenario). Second, it shows that economic circumstances affect cognitive ability.

The conclusion we draw is that poverty is not a sign of personal failure, but rather a particular context that comes with a set of predictable responses. It is, essentially, chronic scarcity—a context commonly associated with depleted willpower, difficulty planning for the future, and lower decision-making quality.

With this alternative understanding of poverty in mind, ideas42 is developing and testing innovative ways to help families permanently achieve economic self-sufficiency. Instead of continuing to focus on what people in poverty are doing (or doing wrong), at ideas42 we’re looking at what the context of poverty does to people, and pinpointing ways to change that context and mitigate its detrimental effects on behavior and decision-making.

One way to do this is to actively help families create slack, or build up reserves of key resources—such as money, time, or attention— that they can fall back on when setbacks and emergencies inevitably occur. Without slack, true financial stability remains out of reach for most families. Organizations invested in truly ending poverty should look for ways to give families the leg-up they’ll need to withstand the challenges that will arise along the road to long-term prosperity.

For a deeper look at ways we can create slack within existing policies and programs, and to review other insights from the Poverty Interrupted initiative, check out our white paper. If you’re interested in partnering with us to apply behavioral science to poverty-related problems, contact ideas42 Vice President Anthony Barrows at