Looking For a “Killer App” For the Poor? Sell Stress Reduction

We need to start treating willpower as a scarce and important resource. That’s the point pushed in a recent New Republic piece on “What can’t more poor people escape poverty?” And it’s a product opportunity for those designing financial services for the poor.

The article is worth reading start to end, but I might summarize it this way. An increasing number of psychologists believe humans have finite stocks of willpower and “spending” it one place leaves us with less to push ahead in another area of our lives. Ever come home from a tough day full of difficult work decisions and interactions and slide right into a bag of crisps you wish you hadn’t opened? (For slightly more rigorously academic examples proving the point, take a look at this experiment by Dean Spears from Princeton. Also check out the clever work on behavioral economics by ideas42 at Harvard.)

For the rich, most of our choices boil down to whether we want something. For the poor it almost always involves a tradeoff, and their choices are often depressing and emotionally depleting: Do I pay rent, or buy lamp oil so the kids can study at night? And given their low income, even small purchases involve potentially stark tradeoffs that, the school of thought says, cumulatively saps willpower and emotional energy.

This is where financial services comes in. We know low-income people are active money managers, but the informal instruments they use are not very good. If the psychologists are right, anything we do to make it easier for the poor to manage their finances with less stress will leave low-income consumers more willpower for other tasks, challenges and goals.

For example, we could make it much safer and reliable to save than via the mattress by convincing employers to pay wages via mobile money and then offering clients the option of automatic deduction into an illiquid savings account geared to some savings goal (e.g. buying a new motorcycle, or Christmas gifts for the children). By making it almost automatic to save, might the saver then have more willpower to “spend” on ideas that lead to increased income? Maybe. It certainly depends on the person. But it’s also a laudable goal in and of itself to reduce the stress people feel from managing their finances (or feeling like their finances are beyond their control).

There are business opportunities in any service that makes people’s lives feel more in-control and headed towards their hopes… if one can figure out how to productize the initial insight. Product innovation is where a lot of firms fall down. It’s hard. And that’s why CGAP is ramping up its work in this domain. We’re not product design experts: but we hope to aggregate the wisdom of people who are, and direct it toward designing financial services for the poor. We’ll be reaching out to potential partners, and you’ll hear more from the Technology & Business Model Innovation Program about designing new branchless banking products.

- Mark Pickens