Want some unexpected advice from iconic high-achievers like Steve Jobs, Mark Zuckerberg and Barack Obama? Wear the same clothes each day. It turns out that Zuckerberg’s grey t-shirt, Obama’s highly predictable blue or grey suits, and Jobs’ iconic black turtleneck and jeans are about more than just branding or personal style. They represent strategic efforts to maximize mental bandwidth. As Obama put it, “I don’t want to make decisions about what I’m eating or wearing. Because I have too many other decisions to make. You need to focus your decision-making energy.”

The cognitive energy that leaders like these guard so jealously has become the focus of increasing attention in recent years. According to behavioral economics researchers, there’s a clear connection between time scarcity, poor financial decision making, and even poverty itself. Indeed, in the recent book by behavioral economics researchers Sendhil Mullainathan and Eldar Shafir, the authors show how diluted mental capacity can combine with scarcity of time and money to form a self-reinforcing cycle that’s hard to break.

As these researchers describe it, our brains respond similarly to scarcity of any type of important resource. Here’s what typically occurs:

  • You realize that you lack something vital, from money or time to food or social connections.
  • Your mind increasingly concentrates on whatever is lacking, and it comes to dominate your consciousness – a phenomenon often called “tunneling.
  • This mindset leads you to set aside other considerations, as you marshal all your cognitive energy to address the immediate scarcity.

Tunneling isn’t always a bad thing, as anyone who’s shifted into a higher mental gear to finish a task on deadline can attest. But there’s a price for this short-term boost in attention: It reduces people’s ability to plan for the long term, while increasing anxiety, which saps both our cognitive capacity and willpower. And these factors can help perpetuate the scarcity that’s at the root of the problem.

The paradox of the brain’s scarcity response was evident in Mullainathan and Shafir’s experiments. They asked people to compete against others in simple games, subjecting the competitors to different forms of scarcity – either by limiting their turns or the time they had to play. Those subjected to scarcity often became more engaged and effective – to a point. But their performance soon faltered, as their laser focus on meeting the games’ immediate demands left them more mentally exhausted and less able to execute – or even consider – a winning long-term strategy. And they succumbed more readily to opportunities to alleviate their immediate scarcity in the games, even when these compromised their overall effectiveness.

In practice, this dynamic manifests itself in situations that may sound depressingly familiar. It affects the chronically overbooked professional, who sets aside her home and family obligations to meet a work deadline, then becomes even busier attending to these neglected demands after the project is done. It impacts the lonely single man, fixated on his lack of social contact, whose singular focus on his own needs makes him a less appealing companion for others, thereby perpetuating his loneliness.

But the effects of scarcity are often most noticeable – and most damaging – when they involve money. Research has shown that the strain of poverty can shave up to 13 points off a person’s IQ — roughly the same impact as losing a night of sleep. Succumbing to fatigue and the scarcity mentality, the poor struggle to plan for the future, make dubious financial decisions, and fail to take advantage of available resources that could improve their health and finances. Their financial stress reduces their willpower and makes them seek an escape, whether through dubious means of making money like lottery tickets and other forms of gambling, or through the instant gratification of unhealthy and expensive habits like smoking. As a result, they find themselves even poorer than before. And the cycle of scarcity continues.

In light of the growing recognition of scarcity’s impact, debates over the self-defeating habits of the poor are beginning to shift. Rather than blaming the economically disadvantaged for their plight, many people are beginning to ask how society – and financial services providers in particular – can counteract the cognitive limitations that drive these habits. Options include designing anti-poverty programs and financial products that don’t require too much mental energy to use, and that are targeted to help customers when they’re “in the tunnel” of covering their day-to-day expenses. Financial services providers like Bangladesh’s bKash, Pakistan’s Easypaisa and even Visa have spoken of their efforts to achieve this, through simple products geared toward meeting customers’ immediate needs. And there’s a robust discussion in the microfinance and global development sectors of how products like savings, insurance, and even cash transfers can help alleviate the poor’s scarcity mentality without imposing extra burdens on their time or mental bandwidth.

Some companies have even built their business model around this new awareness. Meed, for instance, is focused on simplifying members’ financial lives by providing banking services with partner banks through their smartphones. Rather than spending their time visiting a bank branch or check casher, members can perform transactions through an online interface that places minimal demands on their mental bandwidth. The company has engineered the application to require the least amount of information, and the fewest number of clicks and screen changes to conduct their financial business. Employing simple graphs and visual cues, it allows users to open an account, deposit a paycheck, transfer funds and conduct other necessary transactions from their mobile device, no matter where they are. And its services – including a checking account collateralized by a savings account with a line of credit that provides cash advances when funds get low – are structured to encourage savings and help members avoid expensive short-term loans and unsustainable debt.

As the new awareness of scarcity’s impact combines with new technologies that can minimize the mental energy needed to conduct financial transactions, banking could become much easier for low-income customers in the coming years. This will not only be good news for these customers, but also for all of us who find ourselves with more tasks than time in our daily lives.

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