Higher Economic Inequality Intensifies the Poor’s Financial Hardship by Fraying the Community Buffer

The current research investigates whether higher economic inequality disproportionately intensifies the financial hardship of low-income individuals. We propose that higher economic inequality increases financial hardship for low-income individuals by reducing their ability to rely on their community as a buffer against financial difficulties. This may occur—in part—because a frayed community buffer reduces low-income individuals’ propensity to seek informal financial support from others. We provide empirical support across eight studies (N = 1,029,900) from the U.S., Australia, and rural Uganda, through correlational and experimental data, and an instrumental variable analysis. On average across our studies, a one SD increase in economic inequality is associated with an increase of financial hardship amongst low-income individuals of .10 SDs. We discuss the implications of these results for policy aimed to help the poor buffer against the adverse effects higher economic inequality imposes on them.