Development economics in a developed country: how do poor Americans save?

This recent episode of NPR’s planet money talks about the financial lives of poor Americans. A few practices mentioned in the article, such as group lending, private lenders, and high interest rates for loans, are strikingly similar with what poor people do in developing countries in Africa and Southeast Asia.

This resemblance leads me to think whether ideas and methodologies in development economics can be (more extensively) applied in developed country settings. Classic models in development economics such as health-based poverty trap and credit constraint can be easily applied to study the causes of poverty in a developed country setting. Comparative studies of poor individuals in developed vs. developing countries can shed light on the impact of institutions, governance, and infrastructure on addressing poverty.

The data mentioned in this episode are pretty amazing — 235 poor households across America tracked over a year with high frequency financial diaries. I bet interesting research based on this data is on the way.

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