June 3, 2010

Should I Buy a Drink or Send my Child to School?

“There’s an ugly secret of global poverty, one rarely acknowledged by aid groups or U.N. reports. It’s a blunt truth that is politically incorrect, heartbreaking, frustrating and ubiquitous: It’s that if the poorest families spent as much money educating their children as they do on wine, cigarettes and prostitutes, their children’s prospects would be transformed. Much suffering is caused not only by low incomes, but also by shortsighted private spending decisions by heads of households.” This comes from Nicholas D. Kristof’s op-ed in The New York Times on May 22, 2010.

Mr. Kristof cites examples of parents unable to pay their housing rent, mosquito nets that help combat malaria or school fees for their children, but they are spending scarce financial resources on alcohol, cigarettes, and prostitutes. His also op-ed refers to a study by two Massachusetts Institute of Technology economists, which claim that “the world’s poor typically spend about 2 percent of their income educating their children, and often larger percentages on alcohol and tobacco: 4 percent in rural Papua New Guinea, 6 percent in Indonesia, 8 percent in Mexico. The indigent also spend significant sums on soft drinks, prostitution and extravagant festivals.”

I know this issue extends beyond the developing world to industrialized nations. The global solution lies within financial education. Furthermore, social services must be offered for people to overcome their addictions to drugs and alcohol. With respect to financial education, there is evidence that women tend to be more responsible when it comes to money management and initiatives implemented by nongovernmental organizations, government agencies, and the private sector should be tailored to further support this trend.

Another solution lies within microsavings, which are small deposit accounts. Microsavings accounts operate similar to a conventional savings account, but the former are designed for smaller amounts of money. Pairing microsavings accounts with financial education programs will promote wiser spending decisions by parents, which will result in long-term sustainable development.

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