Why Budgeting is Misguided Advice for Low-Income Individuals

 It is often counterproductive to recommend budgeting as a financial solution for low-income individuals, when what they truly need is a fair wage and access to a robust social safety net.

Veronica Duke understands the difficulties of growing up in poverty and was motivated to offer a better life for her children. Due to her partner’s catastrophic brain damage, she became a single mother in the summer after her high school graduation in 1983. She made the tough decision to pursue her schooling rather than work full-time. She thought that continuing her education was the most effective approach to better her situation and break free from poverty.

“From the time my daughter was one until she was about six, I was in school,” Duke explained during an interview for my book, You Don’t Need a Budget. To maintain her family, Duke worked part-time while studying and supplemented her income with government aid programs. These programs were vital to her family’s existence, but they needed careful administration to remain eligible. Social workers were meant to help her navigate the system, but instead they gave her budgeting pamphlets and gardening tips, both of which were impractical for low-income people.

“When I went to the food pantry, I had to endure the shame of being lectured about budgeting,” Duke said, illustrating a frequent experience for people who rely on social services.

This technique is still common today. In 2022, a former caseworker wrote for Sound Wealthy on how shelter programs continue to impose budgeting and weekly surveillance of families experiencing financial trouble.

“I shared the knowledge I had learned from training and financial experts of the time, unaware of the emotional toll and insecurities I was reinforcing,” she wrote. “Many of the individuals I worked with had been harmed by financial advice that made them feel guilty for not adhering to some unexamined ideal.”

According to Sloane Ortel, Chief Investment Officer of Moral Capital, this form of financial advise ignores the reality that people going through financial troubles are already “budgeting” their money. When one has pick between paying rent, keeping a car, and feeding their children, there is just no place for further costs.

“The real issue is often a lack of sufficient income,” Ortel stated. “This might be due to disability, disease, caregiver obligations, or simply bad luck. Giving specific budgeting guidance to low-income people when the real issue is a lack of revenue might seem unnecessary and unhelpful.”

Duke stated that throughout her daughter’s early years, she cut costs whenever possible. “I tried everything I could to preserve. I nursed her, used cloth diapers, and sewed her baby clothing. I brought a calculator to the shopping since every penny counted. “I only purchased what was absolutely necessary.”

It is terrible to encourage someone to budget when the true solution is decent salaries and a functioning social safety net. More significantly, research indicates that budgeting does not necessarily result in better financial results for low-income households.

Despite the widespread use of budgeting as the foundation of personal money management, proof of its long-term usefulness is surprisingly scant. In my study for You Don’t Need a Budget, I learned that, while budgeting is often advocated, it has not been definitively shown to improve financial well-being. A study of different research undertaken at the University of Minnesota revealed no consistent evidence that budgeting helps people reach their financial objectives over time. In fact, the study found that budgeting frequently reduces the joy people have while spending money, especially for those who are already under financial restrictions, such as Duke.

Due to a dearth of evidence on the effectiveness of budgeting, I looked for comparisons between budgeting and another restrictive practice—dieting—that has been thoroughly examined. Like budgeting, dieting is rarely sustainable and frequently fails to meet its long-term goals. Furthermore, the guilt and humiliation associated with restricted diets can have a harmful impact on persons experiencing food insecurity. A research discovered that those who experienced significant levels of food insecurity were more likely to fulfill clinical criteria for an eating disorder than the general population. In other words, diet culture may make individuals who have limited access to food feel so bad about overindulging that they deny themselves even more.

It is easy to understand how the thrifty mindset, reinforced by years of hardship and cultural guilt, may promote a similar attitude toward money. The University of Minnesota study found a consistent pattern of constraint followed by indulgence among budgeters in low-income households. When financial instability is added to the mix, this effect is likely to be amplified, especially if severe budgeting is imposed on those who are already struggling financially.

Duke’s trauma from this hyper-focus on tight budgeting has lingered, even as her financial situation has eased over time. “You develop a poverty mindset,” she remarked. “I think I still suffer from it at times.”