What you can learn from Portfolios of The Poor

One of my resolution that i have planned before is reading some books, actually that isn’t easy anyway because i have to spare my time beside my daily-activites (working) but i enjoy the transition because i have to get used to about it, a lot of the most successful people around the world make reading a priority in their life, ex : Warren Buffet still reads for about 8 hours a day. I write this story when corona outbreak hits a lot of countries, that virus gives a lot of problem not only about human health but also economic impact such as a lot of restaurants, airlines & small businesses are closed or revenue decreased which can make unemployment rate increased. Portfolios of The Poor : How the World’s Poor Live on $2 a day by Daryl Collins, Jonathan Morduch, Stuart Rutherford & Orlanda Ruthven, this book brings me a lot of insight how poor households manage their money and describe how those people manage their low income. Can you imagine if you living in that income? how do you manage your money? maybe is hard for us to imagine that. The world bank counted 2,6 Bilion people live $2 a day or less i 2005 (two-fifths of humanity) then 0,9 Billion live less than $1 dollar a day. This book can give International organizations, International charity & Politicians deep insight to solve poverty around the world.

Financial Diaries
To understand poor households behavior, this book use financial diaries method to discover and learn about their money-management in detail and the importance of financial tools for them. Financial diaries are conducted in three countries such as Bangladesh, India and South Africa. From all that countries more than 250 completed diaries are collected, that data is collected by interview and live with them to understand their daily activities. Financial Diaries bring the insight that poor households rarely consume every penny income as soon as it’s earned (they seek, instead to manage their money by saving when they can & they borrow when they need to), so if poor household assure access to handfull of better financial tools, their chance of improving their lives would surely be much higher.

How to Deal with $1–$2 a day

Poor households deal with uncertainty of their income, they have to live on small, irregular & volatile income, from that i learn about getting food on the table is hard to manage by them then is more difficult to manage emergency expenses such us for education, sick or move to another location if they are expeled by landlord incase if they lived under illegal-land. To deal with those, they have to manage their money wisely or use financial tools (saving or borrowing)

Small, Irregular & Unpredictable

One of the key success to deal with uncertainty, they have to manage their money effectively then find another source of money to fullfill cash flow gap. They have to deal not only low income but also irregular and unpredictable, but too few financial instrument are available to effectively manage these problem. Almost every household borrowed informally from family or friends or they follow saving-clubs ( we call it “ARISAN”) to manage their cashflow, for example : Farmers get money during harvest-season but earning nothing before harvest-season or woman become maidserving is often part-time, occasional or temporary.

Money Management

One of the common pattern that emerge, most of transactions are carried out with informal partner rather than formal institution like bank or insurance companies. The partner are often neighbors because informal saving & borrowing are genarally reliable and flexible. Saving is very hard for poor households to do because they have to manage their money in daily basis. In financial diaries explain about what kind of saving that fit with them. For the first kind, poor households seek to keep money in places that they can access freely and frequently, both to maximize the amount they save and to ensure that they can retrieve the savings at short notice. Security is important, but so is convenience. Reward (in the form of interest receivable) is of less importance: thus they may hide savings at home or entrust cash to their next-door neighbor, but When households try to build savings into large sums, the mix of characteristics shifts, now security is very important. Sometimes to force them manage their money, they pay service-fees to Money-safe-guard that force them to save their money, maybe is not rational when mosf of us used to being paid interest on bank deposits. Similarly, for borrowing there are three drivers of need may cause the poor to approach different kinds of lenders who offer loans that vary in value, term, price, repayment structure, and availability. Sometimes local informal lending, which tends to be interest-free, will be best for day-to-day management, but on the other hand it may also make sense to take a larger loan from a more formal lender.

For Poor Households just having access to basic financial services can have a fundamental impact, one that may be as important as asset-building. This is because when incomes are low, financial strategies need to focus in large part on coping with the irregularity and unpredictability of income in order to get food on the table and address other basics.

Reference : Portfolios of The Poor : How the World’s Poor Live on $2 a day by Daryl Collins, Jonathan Morduch, Stuart Rutherford & Orlanda Ruthven

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