Overcoming the scarcity mindset

My father came to the UK from Uganda in 1972, following the expulsion of Indians under the dictator Idi Amin.

From his stories about his arrival here, two always stay in my memory. One, jogging in winter in just a t-shirt and shorts as he didn’t own a tracksuit. Two, only showering on a Sunday because that was the only day the landlord would allow the family hot water.

When I fast-forward to my childhood, whilst I never had to go without, I have grown up with a scarcity mindset, influenced by my parents’ experiences and approach to money management. (A young person’s money management habits are heavily influenced by their family’s financial behaviour, and many financial behaviours are established by teen years)

This very disciplined approach to spending - with value for money very high on the priority list when considering outflows - has allowed me to save a lot of money relative to my peers in my teens and early working years. This is common amongst those who have had similar experiences; however, a scarcity mindset can also limit us in important ways.

The scarcity mindset

Scarcity is defined as the feeling someone has when they have less of a resource than they perceive they need.

One downside is opportunity cost. We can spend too much time seeking out the best deal when we could be doing more productive things. For example, researching to save on the cost of a holiday, but the value of that time far outweighs the saving.

More significant is the potential impact on behaviours. Research by behavioural economist, Sendhil Mullainathan and psychologist Elder Shafir has shown that scarcity affects fluid intelligence, which is like reducing IQ points. Being preoccupied by scarcity reduces our mental bandwidth, the magnitude shown to be similar to being severely sleep deprived. You can imagine the impacts on decision-making..

Whilst scarcity is typically thought of in terms of financial resources this concept applies more broadly, e.g. to time. We normally think of time management and money management as distinct problems. The consequences of failing are different, yet despite these differences, the end behaviours induced by either are remarkably similar.

The abundance mindset

You may have heard the statement, ‘you need to spend money in order to make money’. A scarcity mindset is unlikely to be the right mindset for acquiring wealth.

The way we perceive and frame information has significant impacts on our subsequent actions. Therefore, if we are looking to acquire we should be framing our outlook in terms of abundance, not scarcity. Not what's the cheapest I can find, but which is the best purchase that will maximise my output.

Spending more on a rental flat or a holiday Airbnb may not be very cost-effective, but waking up feeling inspired, and with the mindset and motivation to acquire a higher standard of living, is an abundance mindset way of looking at things.

Implementation idea

Consider the following question: are there areas of my life where a scarcity mindset might be holding me back and limiting my progress? Remember that scarcity is broader than financial, so think holistically about your life.

Life does not need to be ‘this OR that’, it can be ‘this AND that’. This is a simple change of framing, which can have a powerful impact on our outlook on life.

Best, Alex Joshi.

On my bedside table:

• Non-fiction: How to build a car - Adrian Newey (link)

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