Q and A with Daryl Collins

But nearly half the world's population - some 2.5 billion people - somehow gets by on less than $2 a day. Indeed, nearly a quarter of the world's people live on less, falling below the World Bank's official global poverty line of $1.25 per day.

How do they do it? A new book, "Portfolios of the Poor: How the World's Poor Live on $2 A Day" takes a detailed look at the daily income and expenses of 285 families in South Africa, India, and Bangladesh, studying how they pay doctors when their children get sick, put food on the table when they're out of work, and pull together money for weddings, funerals, and holidays.

Daryl Collins, a former professor at the University of Cape Town, ran a team of six field workers in South Africa who kept "financial diaries" on 152 families, visiting them every two weeks to ask specific questions about how they managed their money.

Far from living hand-to-mouth, it turned out, these households had complex financial strategies. A sheep intestine seller paid $30 at a time into a "savings club" with three friends who took turns going home with a $120 pot. A rickshaw driver living in a one-room house saved enough when times were good to buy a life insurance policy and stow away a half a month's wages.

The complex picture that emerged is a key to easing poverty, says Collins, who now works at Bankable Frontier Associates, a Somerville-based consulting firm that aims to extend financial services to the poor. With all the debates over debt forgiveness and all the pleas for aid, surprisingly little attention has been paid to how the poor already help each other, and what can be done to improve the systems that they already use.

Collins spoke to Ideas by phone from her home in Harvard, Mass.

IDEAS: Looking at poor people's finances in this analytical way, what did you discover that you didn't know before?

COLLINS: People who do fieldwork have two views. They either think these households desperately need our help and they are just hopeless without us, or they think they are just geniuses. I think what dawned on me during this study was that you don't lose your personality just because you go down the financial chain. Some people just couldn't keep track of their money and some people did a brilliant job of keeping track of their money. Just like our circle of friends, you have some people who are organized and some people who are not. There was this bar owner and her husband who saved a good 40 percent of their income. She was just extremely disciplined about the way that she ran her business. She had a clear credit rule: You could drink on credit over the weekend, but you had to pay by Friday. And if you were drinking on credit, you had to pay more.

IDEAS: What can Americans learn from the world's poorest, especially during an economic downturn?

COLLINS: In the US, people are very, very concerned about building strong balance sheets and acquiring assets, like houses. . . . What we found in South Africa is that what you needed to focus on first was cash flow. When you think about analyzing a company that has been around for a long time, you would look at assets and liability to judge the strength of that company, but when you have a start-up company, you look at cash flow. Low-income families are the same way. . . . It's a sign of the financial health when they are able to come up with the right amount of money at the right time, or have fallback measures in their financial portfolio that will allow them to put food on the table, even if they just suffered some big loss.

IDEAS: You began your career at a New York investment bank, Lehman Brothers. Many of your former colleagues on Wall Street are now unemployed. What about them?

COLLINS: We never wrote it with that audience in mind at all, but there is a point that we can make here. . . . Rich Americans now may be waking up to the idea that, "Do I have a problem with self-control?" But these [poor] households very clearly said, "I get it. I need to delay gratification." . . . They know that when they get money into their hands, they are going to spend it, because there are a bunch of useful things they could spend it on. So as soon as they get cash, they try to put it somewhere, so that their relatives don't come asking for it, so they don't give their children something.

IDEAS: Can you give any other examples of these financial mechanisms?

COLLINS: Here is an interesting mechanism. . . . They call it money guarding. If you get a fairly decent chunk of money, you give it to a money guard, a neighbor or relative or friend that you trust and say, "Hold this, and don't let me touch it." Sometimes the same money guard asks you to hold their money, and so when someone comes to borrow money, you say, "It's not my money." It works.

IDEAS: Are the poor as poor as we thought? What are our biggest misconceptions about them?

COLLINS: People will even tell you that they live hand to mouth, but they don't take the money and spend it right away. It works its way through these financial instruments. If you lend it to your neighbor, you might do that so you get it out of your house and don't spend it. People manage their money more than you think. . . . The other thing that really comes through is that when we talk about a dollar a day, you don't get a dollar every day. It is a lump sum, and it is very irregular. That unreliability means you have to have particularly good financial instruments in order to patch the time between when that income is going to come. I found when you get to the poorest households, they can recall their cash flows a month ago.

IDEAS: Did you pay people to be in your study?

COLLINS: We gave them gifts at the end of the study. We didn't tell them at the beginning that we were going to do it. . . . In South Africa, we gave everyone about a month's worth of income. It was just about Christmas time and we knew that people would need money.

Farah Stockman, foreign affairs reporter for the Boston Globe, also runs an educational program for street children in Kenya. E-mail fstockman@globe.com.