Higher economic inequality intensifies the financial hardship of people living in poverty by fraying the community buffer

• Published in: Nature human behaviour Vol. 4; no. 7; pp. 702 - 712
• Main Authors: Jachimowicz, Jon M, Szaszi, Barnabas, Lukas, Marcel, Smerdon, David, Prabhu, Jaideep, Weber, Elke U
• Format: Journal Article
• Language: English
• Published: England Nature Publishing Group 01.07.2020
• Subjects: Australia; Community; Economic inequality; Female; Financial support; Humans; Income - statistics & numerical data; Income inequality; Inequality; Low income groups; Male; Poverty; Poverty - statistics & numerical data; Residence Characteristics; Rural Population; Side effects; Socioeconomic Factors; Uganda; United States; Australia; United States; Uganda
• ISSN: 2397-3374; 2397-3374
• DOI: 10.1038/s41562-020-0849-2

The current research investigates whether higher economic inequality disproportionately intensifies the financial hardship of low-income individuals. We propose that higher economic inequality increases financial hardship for low-income individuals by reducing their ability to rely on their community as a buffer against financial difficulties. This may occur, in part, because a frayed community buffer reduces low-income individuals' propensity to seek informal financial support from others. We provide empirical support across eight studies (sample size N = 1,029,900) from the United States, Australia and rural Uganda, through correlational and experimental data, as well as an instrumental variable analysis. On average across our studies, a 1 s.d. increase in economic inequality is associated with an increase of financial hardship among low-income individuals of 0.10 s.d. We discuss the implications of these results for policies aimed to help people living in poverty buffer against the adverse effects higher economic inequality imposes on them.