Financial concerns, cognitive abilities, and economic decisions

A life in poverty is associated with worries, stress, and anxiety from the uncertainty of being able to afford essential household expenditures. We refer to the psychological hardships related to poverty as “financial concerns” and study whether lowering these concerns affects individuals’ cognitive abilities, effort, and subsequent decision-making processes and economic activity. We propose a lab-in-the-field experiment in Nairobi, Kenya, where we recruit low-income participants for two consecutive days of activities and exogenously vary the timing of a future, unconditional, and high-stakes payment to them. While we introduce an equivalent payment to both groups in monetary terms, the difference in timing lowers the immediate financial concerns for individuals in the treatment group relative to those in the control group. Since the promised income is only paid after the end of activities, participants are not able to consume it before all measurements are taken. This allows us to isolate financial concerns from consumption itself. We are then able to establish the existence of a causal relationship between financial concerns, cognitive abilities, and economic outcomes.