A large portion of Americans are, well, broke. A Pew Research Center report indicates that a surprising 40% of Americans identify themselves as lower-middle class. This statistic, coupled with the fact that around 50 million Americans earn below-poverty level salaries, conveys just how many Americans are earning lower incomes these days.
Have you ever been broke? If so, did your financial decision making improve as a result of your limited financial resources? A 2013 study published in Science found that being broke can negatively impact your decision making. Why? Well, possibly because having lack of money imposes a cognitive load that soaks up your attention and reduces your effort.
“They found that considering a projected financial decision, such as how to pay for a car repair, affects people’s performance on unrelated spatial and reasoning tasks. Lower-income individuals performed poorly if the repairs were expensive but did fine if the cost was low, whereas higher-income individuals performed well in both conditions, as if the projected financial burden imposed no cognitive pressure,” according to the editor’s summary of the research.
So decision-making may be a bit more difficult overall when you have less money to work with. But when people are broke, sometimes they pick up a habits and behaviors that only make the situation worse. We’ve created a list of five mistakes people make when they’re broke. Have you ever been guilty of any of these?