This is the last chapter of Part I. It illustrates the explanatory power of the findings thus far by applying them to a well-known puzzle: Why is it that poor people so often seem to lack the willpower and discipline to improve their life circumstances? Sometimes this is explained by reference to a “culture of poverty,” but this explanation is highly controversial. This chapter provides a fresh take on this contentious issue by showing that, irrespective of the sociology, there certainly exists a psychology of poverty. Based on a wide range of data, I show that poverty is correlated with a higher incidence of all the factors undermining self-control discussed in the preceding chapters. I also show that children who grow up in poverty more often experience the circumstances that hamper the development of self-control, while adults who live in poverty more often experience the situational conditions that hinder the successful exercise of self-control. The upshot is that punishing the poor for undisciplined behavior – say by cutting their welfare – may well be counterproductive.

This chapter documents how structural changes in labor markets, life course trajectories, and welfare states have increased income volatility and financial shortfalls over time and across countries. It begins by offering a new measure of financial shortfalls, comparing households’ annual gross and net income volatility based on panel data from Denmark, the United States, and Germany, revealing considerable variation in income volatility across and within countries. It shows that the Danish welfare state absorbs much larger amounts of gross income volatility that the flexible labor market produces compared with the United States. In Germany, the welfare state also addresses a sizable share of gross income volatility. But unlike in Denmark, gross income volatility has declined slightly since the mid-2000s, while net income volatility increased during the Hartz reform period of the early 2000s. This chapter further shows that in Denmark and the United States income volatility due to life course events such as taking time off work to raise families or to get training and education is much more prevalent than income volatility due to unemployment or sickness. In Germany, by contrast, employment disruptions still drive more income volatility than life course choices.