Could you live on $2 a day? Fox Business explores this question with Portfolios of the Poor author Jonathan Morduch:

On today’s Planet Money:

Economists at the World Bank calculate that 2.5 billion people live on $2 a day, but what exactly does that mean? In the developed world, living on so little would be almost unthinkable. For 40 percent of the global population, $2 a day is a reality that must, somehow, be made to work.

In Portfolios of the Poor, Daryl Collins and co-author Jonathan Morduch uncover the surprisingly complex financial lives of the most destitute people.

We saw huge reviews of Portfolios of the Poor this weekend. Over at The New Yorker, they call the book “invaluable” and the Washington Post’s Carlos Lozada describes the research as “refreshingly distinct.”

An interview with Intrepid Liberal Journal’s Rob Ellman is also making the rounds, appearing at The Daily Kos, The Agonist, Smirking Chimp, and many other sites.

Over at Devex.com, David Lepeska has posted a series of short interviews with Jonathan Morduch, co-author of Portfolios of the Poor. In the first segment (linked to here), Jonathan discusses the research for the book and why it provides greater insight into “what microfinance, or what banking for the poor, could become.”

Riccardo Rebonato, global head of market risk and global head of quantitative research and quantitative analysis at the Royal Bank of Scotland and author of the prescient PLIGHT OF THE FORTUNE TELLERS: Why We Need to Manage Financial Risk Differently, discussed the weaknesses of mathematical finance models and their over reliance by quants as we’ve witnessed during the economic collapse last week on the very popular blog Econtalk.  Listen to it here. This lively chat provides an insight into the managing of risk by one of the industry’s top players.  

PLIGHT OF THE FORTUNE TELLERS was published in the autumn of 2007, well before the economic downturn.

This morning, Tom Ashbrook, the host of On Point (WBUR) spoke with researchers Stuart Rutherford and Daryl Collins and one of their survey participants Lufefe about what it really means to live on $2 a day.  Lufefe, along with hundreds of others, participated in a year-long survey of the poor’s financial practices. Rutherford and Collins, along with Jonathan Morduch and Orlanda Ruthven, gathered meticulous financial diaries that demonstrate not only don’t the poor live hand-to-mouth, but they manage their money well enough to save for life’s big emergencies and celebrations. If you visit WBUR’s site, you can listen to the program and also view a series of photos taken in the Langa Township where Lufefe lives and where much of the research was conducted.

Collins and Rutherford’s research is available in Portfolios of the Poor. Visit the book’s web site here: http://www.portfoliosofthepoor.com/

Image Caption: A participant in the “financial diaries” research in Madhupur, Bangladesh, March 2009. Photo: Robin Saidman /VitalEdgeAid.org

Feizal, Uttar Pradesh, India
Feizal’s story illustrates the effect of resource constraints on health-seeking behavior.
Feizal’s ten-member family lives on a household monthly income of $36, largely comprised of his earnings selling aluminum pots and supplemented by his son’s earnings as a tailor’s apprentice. His wife and daughters roll bidis (cheap cigarettes) to sell. Although their income is low, the family stocked away significant savings in preparation for one daughter’s wedding.

When Feizal fractured his thighbone, the family was suddenly without its main breadwinner. He didn’t have insurance, and because he didn’t want to spend the money the he’d saved for his daughter’s wedding, he went to a less expensive, traditional doctor. But the break got worse, and the family was forced to spend nearly $250 (two-thirds of their income for a whole year) on a modern doctor and hospital fees. Feizal’s father paid for the rest, and Feizal finally went back to work eight months after the accident.

During Feizal’s health crisis, the family’s financial net worth deteriorated but did not turn negative. They avoided taking on expensive, interest-bearing loans to make ends meet, and instead drew down savings, took small interest-free loans from friends and neighbors, and used shop credit to buy household goods.

In the end, though, the costs of the accident—both the direct cost of treatment and the indirect cost of lost wages—pushed the family deeper into poverty. If Feizal could have relied on an insurance product, paying small amounts dispersed over time, he would have had the incentive to seek early, high-quality care at a much lower cost.

Feizal’s financial diary and those of other survey participants are available at http://www.portfoliosofthepoor.com/portfolios.asp

“The World Bank estimates that half of the world lives on $2.50 a day or less. As global leaders scramble to stabilize the financial systems of the world’s largest economies, they have an unparalleled opportunity to include the world’s poorest households. Meaningful and inclusive reform expands financial access to those who need it most,” writes Jonathan Morduch over at Forbes.com.

Morduch is co-author with Daryl Collins, Stuart Rutherford and Orlanda Ruthven, of Portfolios of the Poor: How the World’s Poor Live on $2 a Day–an unprecedented study of how poor households in Bangladesh, India, and Africa manage their limited funds.

In his editorial, Morduch asks us to rethink our assumptions about the world’s poor–”The most fundamental misperception is that the world’s poor don’t have the capacity for much of a financial life. The opposite is true.”

In fact, as Portfolios of the Poor demonstrates, the poor set aside money in savings—hidden away at home, or left with a moneyguard—maintain a credit account with the local shopkeeper, and swap food with neighbors. This unexpectedly intense financial life is necessary because, as one survey participant notes, “if you’re poor, there’s no alternative.”

The complete editorial is available here.

From over at the Free Exchange blog at The Economist:

I CAUGHT an interesting panel last night on a the new book “Portfolios of the Poor: How the World’s Poor Live on $2 a Day“. It documents the financial lives of some of the world’s poorest people. What many people may not realise about low income is that it tends to be variable and unpredictable. Even if you earn just $2 a day, chances are you’ll earn $5 one day and zero the next. So the image of living hand to mouth is often inaccurate. Poor people must have some savings to survive, but many lack access to traditional banking. They end up resorting to elaborate ways to transfer wealth across time. Often this means simply stuffing money in their mattress or using a money guard (another person to hold the money for them). But this leaves their savings vulnerable to theft and fire.

And this is hardly a problem exclusive to the poor in third world countries. As the blogger notes:

What struck me about the stories of the poor in Bangladesh and Africa was how many aspects of their financial lives I saw teaching financial literacy in a homeless shelter in New York City. The women I spoke to were smart and financially savvy (they certainly had a keener instinct when it came to fraud), while being shut out of formal banking channels.

The Financial Access Initiative and Africa House Present:

Portfolios of the Poor: How the World’s Poor Live on $2 a Day
A panel discussion followed by a book signing and wine and cheese reception

Authors: Daryl Collins, Jonathan Morduch, Stuart Rutherford and Orlanda Ruthven
Published by Princeton University Press

Thursday, May 7th
6 - 8 pm
NYU Law School, Lipton Hall
108 West 3rd St.
New York, NY 10012

Click here to RSVP.

Opening remarks:
Rogan Kersh
Associate Dean, NYU Wagner School of Public Service

Panel Discussion Participants:
Matthew Bishop
Chief Business Writer/American Business Editor, The Economist
Daryl Collins
Co-author, Portfolios of the Poor, Senior Associate, Bankable Frontier Associates
Bill Easterly
Professor of Economics, NYU, author of The White Man’s Burden
Jonathan Morduch
Co-author, Portfolios of the Poor, Professor of Public Policy and Economics, NYU and Managing Director, Financial Access Initiative
Yaw Nyarko
Professor of Economics, NYU, Director of Africa House

My author Riccardo Rebonato has the job title ‘Global Head of Market Risk’ for the Royal Bank of Scotland Group. Until a few months ago this was unambiguously impressive. Now, rather like a watch officer on the Titanic, events would seem to have overtaken him. Riccardo though is one of the few members of his profession who can legitimately claim to have warned us all that things were not at all well in the world of financial risk management.

His 2007 book Plight of the Fortune Tellers: Why We Need to Manage Financial Risk Differently’ was, we believed, an important and rather controversial work – given that the message it carried was effectively a critique of the (then) masters of the universe. 

Our Director Peter Dougherty was invited by the Seminary Co-op bookstores in Chicago to write about our new book ANIMAL SPIRITS: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism in their “Editors Speak” forum, and for your reading pleasure, here it is!  According to their website, “Editors Speak” will present a rare opportunity to literary and university press editors to discuss and explain the books they have published. While serving on one hand as a review of the book, we also hope this will offer a unique insight into the publishing process and the choices made before a book goes to press.  You should check out their site regularly to see what’s cooking over there. 

But I digress…. Peter shines a light on the fascinating back story of how ANIMAL SPIRITS came to be, and its role not only in this current financial disaster but for economists and public policy folks of the future.