The Cycle of Poverty

Someone told me yesterday that the poor spend more money on commodities in Africa than the rich do.  It’s counterintuitive but here’s the reasoning:

The rich have the ability to buy in bulk.  For example, they will buy a kilo of flour at a time, or pay extremely little for running water in their homes.  People in poverty on the other hand, buy essentials for that day alone.  They buy enough flour for a day, and haul a few liters of water at a time because that’s all they can afford.  By buying in such small quantities they are forced to pay middlemen exorbitant markups, but it’s an unavoidable fact of life.

All this would be fine if poverty were being alleviated.  If peoples’ incomes were growing with time, they could start paying less for higher volumes and save more money overall.  But the poorest people in Kenya make one to two dollars a day and their incomes are not growing significantly.  Every cent of their money is budgeted for something.  Let’s say you spend 50% of your income on food, 25% on fuel, 15% on water and have 10% left for everything else.  There’s no way you can escape the trap of paying unnecessarily high prices when you’re that close to the edge.  You’re forced to continuously think on a day-to-day basis because you have no other options.  That is the cycle of poverty in action.

All this came out of me asking why people credited 20 shillings (23 cents) at a time on their cell phones.  It seemed ridiculous that people would repeatedly return to the store and buy minutes when they could buy 500 shilling and make it last a month.  What I didn’t realize was that people here have money for one day at a time.  Money is more precious than time when you’re living on $2 a day.  It’s unfair and needs to change but it’s the reality in much of the developing world.

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