MIT Research Paper Describes Consumption Habits of Abject Poor

New research titled "The Economic Lives of the Poor" from MIT describes the consumption habits of people living on an income of $1 per day (the abject poor) and $2 per day (poor). A key finding is that the poor are not limited to purchasing subsistence goods, but rather have a significant amount of discretionary income.

The research data additionally somewhat discredits the concept that extreme poverty is defined by insufficient subsistence goods such as food. For a typical family surveyed spending on food consumption ranged from 56% - 74% (the researchers speculated that the large difference in consumption on food is in part based on the relative discrepancy in domestic consumer goods. For example, India produces low cost electronics) followed by a median expense of 10% of income on festivals (including weddings, funerals, or celebrations) and alcohol and tobacco which ranged from a median of 4.1% in Papa New Guinea to 8.1% in Mexico. Spending on education averages 2% of income across the households surveyed.

For every 1% increase in income, the average amount of increase on food spending is .067% (Deaton & Subramanian, 1996). Additionally, the amount of television ownership increases from 14% to 45% across nations surveyed when income increases from $1 to $2.

The data compiled in the paper is based on the World Bank's Living Standards Measurement Survey (LSMS) and the Rand Foundation's Family Life Survey.

The paper raises concerns about the effectiveness of foreign aid. Based on MIT's research, direct food aid may contribute to a higher level of discretionary spending among the poor rather than raising levels of health. However, a micro-credit initiative may see mixed results. The lack of entrepreneurial opportunities likely is constrained by the absence of productivity supplies. Although, the significant amount of luxury purchases by even those who are considered abjectly poor likely creates a large pool of potential consumers for a small entrepreneur.