In Portfolios of the Poor, Daryl Collins and her colleagues explain how the world’s poor live on $2 a day:
In the US, people are very, very concerned about building strong balance sheets and acquiring assets, like houses. What we found in South Africa is that what you needed to focus on first was cash flow. When you think about analyzing a company that has been around for a long time, you would look at assets and liability to judge the strength of that company, but when you have a start-up company, you look at cash flow. Low-income families are the same way. It’s a sign of the financial health when they are able to come up with the right amount of money at the right time, or have fallback measures in their financial portfolio that will allow them to put food on the table, even if they just suffered some big loss.
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But these [poor] households very clearly said, “I get it. I need to delay gratification.” They know that when they get money into their hands, they are going to spend it, because there are a bunch of useful things they could spend it on. So as soon as they get cash, they try to put it somewhere, so that their relatives don’t come asking for it, so they don’t give their children something.
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Here is an interesting mechanism. They call it money guarding. If you get a fairly decent chunk of money, you give it to a money guard, a neighbor or relative or friend that you trust and say, “Hold this, and don’t let me touch it.” Sometimes the same money guard asks you to hold their money, and so when someone comes to borrow money, you say, “It’s not my money.” It works.