Research & Analysis

Money Resolutions, a Sketchbook

Like everyone, poor people want financial predictability. They want more regular income and more predictable expenses. But it is a struggle when you are poor, and not just because your income is low. Income is never guaranteed, and health, weather, crop, and other risks can easily overwhelm your means.

So how do people cope? How are they able to invest in growing their income while also creating some stability? Poor people seem to rely heavily on rules of thumb, conventional wisdoms, and habitual practices to manage their money. In the context of decision fatigue, relying on rules of thumb makes sense and can produce more discipline. These behaviors, more than deliberate, seem to be automated decision-making.

This paper identifies six behaviors that commonly underpin people’s money management practices, four of which are highlighted in the brochure for financial service providers and in the video at the bottom of this page.

By understanding how and why the poor manage their money, financial service providers can in turn create more meaningful, useful solutions that will be taken up more broadly. Building on these six ways poor customers manage their money is a starting point. (See Money Resolutions, Digital Simulations, to learn how financial decision-making practices commonly employed by poor people could be supported through a digital financial service platform.)

The six money management practices explored in the paper are summarized below. Read the full paper for more.

1. Income Shaping | How the poor gain financial predictability through income regularity

Poor people often have more than one source of income. But how do they determine what those sources will be? Rather than simply consider the size of the income, they focus on when things pay (the timing). Income from one source can get them through a period of time when another source hasn’t paid out yet. In fact, the timing of one income source may make it more valuable than another that pays more. This act of “shaping income” results in a patchwork of income-generating activities that are well-timed to meet daily expenses.

2. Liquidity Farming | How the poor gain financial predictability through insurance for surprise and unplanned expenses

People actively cultivate relationships with others who can help them in case of need—whether they are family, friends, employers, local stores, professional money lenders, or financial institutions. They cultivate these relationships through behaviors such as providing a loan to a friend or contributing to a wedding – even when it is a financial stretch and may require sacrificing other needs. In return, they can ask for financial help in a time of need. The key attraction of liquidity farming is that liquidity can be harvested at any time, on demand.

3. Spending Routines | How the poor gain financial predictability through predictable expenses

Establishing a regular set of expenditures helps people build the discipline to use liquidity wisely when they come across it. It also minimizes the number of stressful spending decisions people face. A key financial concern, then, is how to establish an appropriate pattern of routine spending. People will calibrate their spending commitments carefully, and adjust as their situation changes; for example, if their income rises, they may upshift their recurrent expenditures by increasing the amount of meat consumed from once a month to once a week or by moving to a better home. Another example of routinizing a goal is investing in a daughter’s education (a routine expense), which reduces the required dowry (a large, one-off investment) to secure the goal of a good marriage.

4. Spending Triage | How the poor gain financial predictability through investment

What happens if people come across surplus, non-recurring income? Because of the uncertainty in their financial lives, it doesn’t work to have a fixed list of spending priorities addressed sequentially. Instead, the trick is to do rapid triage of spending options when the need arises. For that you need to define the available spending options (the chose set) and how to pick among them (decision rule). The choice set is easily assembled and updated – a kind of mental shopping cart of things that you would like to buy or pay for, if only you came across money. The decision rule very often is based on urgency: buy the thing that fulfills the most pressing need.

5. Animating Money | How the poor gain financial predictability through designated money

People often give money a story (whence it came, what it is to be used for), a timeline (short-term/longer-term money), and a spirit or moral quality (virtuous/loose or hard-earned/easy-come-easy-go money). By projecting emotions onto money, these stories let people put money management on autopilot and avoid small, frequent temptations. They help create a set of money management procedures that you don’t have to think about too much, that feel intuitive and right, that are fairly flexible and adaptable to changing circumstances, and that you are happy running with for a while. The emotions these stories trigger become the enforcers of those rules.

6. Concentrating Goals | How the poor gain financial predictability through goal-setting

It is surprisingly infrequent to hear that a household is saving up for a specific larger, one-off item that is achievable in the medium-term, such as a sewing machine or latrine or motorcycle. The reason is that people often maintain broader, fuzzier goals around aspirational and nonurgent items. One advantage to this is that it serves as a psychological defense mechanism: why think up a goal until it is reasonably within grasp? A fuzzy goal could be improving the status and comfort of the house, building a better future for the children, or retirement in old age. An item may come to represent the fuzzy goal, but it does not necessarily constitute a firm decision to buy that specific item.

Related Resources


This brochure highlights four money management practices of low-income people - and why it matters to financial service providers.

In this animated video, CGAP explores 4 rules of thumb poor people use to manage their money.


This is a companion paper to "Money Resolutions, a Sketchbook." It imagines digital financial services that would build on two common money management practices of the poor.