Behavioural insights teams around the world have demonstrated that understanding the quirks of human psychology can help policymakers more effectively respond to tricky problems in fields as diverse as energy consumption, organ donation, recycling, healthy eating, and tax compliance. But what about using behavioural insights to move people off of income support? In today’s blog, Dr Katherine Curchin (@KatieCurchin) of ANU explores how behavioural science can help us think about the poverty trap created by the inadequate rate of Newstart. This post draws on her chapter on 'Behavioural public policy and poverty' in the Routledge International Handbook of Poverty out in October 2019.

Dr Curchin will be sharing her insights at the upcoming Power to Persuade Symposium, contributing to a panel on “The use of evidence through a gender lens.” Register now for 10 October 2019 at the beautiful Melbourne Museum.

Is Newstart a poverty trap?

Many recipients of Newstart currently find themselves trapped in poverty. Paid at just under $40 a day, Newstart has not increased beyond inflation since 1994.

The chorus calling for an increase to Newstart is broad. There are many reasons why raising the rate is good policy, including that the effect it will have on inequality and the stimulus it will give to local economies.

Yet another reason we urgently need to raise the rate is the scientific evidence on how poverty affects the brain. An emerging body of behavioural research shows that the experience of not having enough to meet your needs can lead to suboptimal decision making. This in turn makes poverty more difficult to escape.

Scarcity and cognitive function

Trying to survive with an inadequate income is stressful and tiring. Unlike people with greater financial resources, people living below the poverty line have no slack in their budgets. Having no financial slack is expensive. People with inadequate incomes to pay their bills are often forced to pay late fees or reconnection fees. They may resort to high interest loans from pay-day lenders.

Living on a very tight budget means that every spending decision involves trade-offs. Unlike wealthier people, people experiencing financial hardship can’t afford to give in to temptation or make financial mistakes. They are very vulnerable to sudden changes in their income or unexpected expenses.

Researchers have argued that the mental effort devoted to making financial decisions leaves people on low income cognitively taxed. Everyone has a limit to how much information they can process, but this problem is exacerbated by poverty. The mind fixates involuntarily on immediate unfulfilled needs. This can cause people experiencing deprivation to focus on getting by day-to-day rather than on preparing for the future. Less urgent problems, though potentially serious and worthy of attention, tend to escape their attention. The intense focus created by scarcity is in some ways adaptive because it helps people solve the immediate problem of survival. But living in chronic scarcity makes more difficult the actions that enable people to exit from poverty – including looking for work or studying. Unemployed people in Australia are generally very keen to find work, but the very low rate of Newstart is, ironically, one of the barriers getting in their way.

When unemployed people’s actions seem to show a lack of will power this is often interpreted as a personal character flaw that might be remedied by increasing control over their behaviour through harsh welfare reform. One example of this is the government’s plan to automatically deduct rent from payments. But new research insights demonstrate this to be a predictable consequence of struggling to navigate impossible circumstances. Importantly researchers have shown that the cognitive effects of scarcity can be induced in well-off people. Laboratory subjects placed in an experimental situation that made them feel like they didn’t have enough were prone to making the same kind of short-term decisions as people living in poverty.

Behavioural science has shown that people are irrationally prejudiced against poor people and erroneously attribute blame to them. The stress of dealing with the stigma of poverty leads to poorer cognitive performance and therefore worse decision making. Research has also shown that socio-economic status affects people’s self-efficacy – self-efficacy is the sense that we have power over what happens in our lives. Together these findings suggest that demonising people on low incomes is unfair as well as counterproductive if our goal is reducing poverty. Using intentional language instead of language which ‘others’ people experiencing poverty is important.

Behavioural insights are all about encouraging change, but too many employment activation policies ignore the need to alleviate cognitive overload first. Photo credit: Pixabay.

What does this mean for the Newstart Allowance?

Behavioural public policy has been criticised for narrowly focusing on the individual level rather than structural causes of poverty. Nudges are the form of behavioural policy most widely embraced by governments around the world. These are small changes to decision-making contexts that are designed to alter the options people choose – examples include rearranging the display of foods in a cafeteria or redesigning an administrative form. Nudges by definition do not improve the array of options available. Critics argue that a lack of good options is a far more significant problem for people living in poverty than flawed decision making.

I agree that nudges are insufficient to tackle poverty. But I think that we need to broaden our understanding of the potential of behavioural public policy. Behavioural science can help us argue for a stronger welfare state because it suggests there are likely to be wide-ranging positive consequences from making income payments for disadvantaged households more generous. It also teaches us that welfare reforms tying payments to demanding conditions have perverse outcomes. The strings attached to payments are often intended to encourage behaviour that will lead to finding work. However, the effort involved in complying with conditions imposes a ‘cognitive tax’ that people living in chronic scarcity can’t afford because they are already investing so much effort in trying to survive.

Rethinking income support from a behavioural viewpoint means removing burdensome requirements that make it harder for people to think clearly about their future. Onerous requirements which are designed to ensure assistance goes only to the people who most need it often prove an insurmountable barrier to those very people. In Australia too many people are falling through the holes in our social safety net.

To escape poverty unemployed people need enough income to eat, to travel to job interviews, to present themselves respectably in public, to engage with others in the community, and – as I have argued here – to have the headspace necessary for thinking clearly about the future.

Rather than deflecting attention from the structural causes of poverty, the psychology of scarcity can help us think about the societal changes that are needed to break the poverty trap. Forcing people on Newstart to live day to day without the essentials of life is cruel and makes it hard for them to plan for a better life. We urgently need to raise the rate.

If you enjoyed this analysis, you may also enjoy:

Looking at the Australian Social Security system through a trauma-informed lens

How much behavioural conditionality is too much?

Creating a crisis for people on income support? Psychology says bad idea

Welfare ‘activation’ policies are counterproductive

This post is part of the Women's Policy Action Tank initiative to analyse government policy using a gendered lens. View our other policy analysis pieces here.

What behavioural insights can tell us about the inadequacy of Newstart