Experiments conducted in India and the US show that poverty could sap people's brainpower and lower the IQ by upto 3 points..
The findings in the US journal Science suggest that being poor can drain a person's mental resources, leaving him or her less capable of focusing on other things, like solving problems and controlling impulses.
"Because you have all these other things on your mind, you have less mind to give to everything else," said co-author Sendhil Mullainathan, a Harvard University economist.
Rather than blaming poverty on the individual or the environment, the study suggests that the state of being poor exerts the same effect as losing a full night's sleep or having lower intelligence.
"We're arguing that being poor can impact cognitive functioning, which hinders individuals' ability to make good decisions and can cause further poverty," said co-author Jiaying Zhao, a professor at the University of British Columbia.
Researchers sampled some 400 people with incomes ranging from $20,000 to $70,000 at a shopping mall in New Jersey.
The shoppers were asked how they would respond to a hypothetical scenario in which their car had broken down and would cost a certain amount to fix.
The question was meant to evoke thoughts of a person's own monetary condition. Some shoppers were told the fix would cost $150, others were told $1,500.
Then they were given a series of cognitive and impulse control exercises to complete, such as putting shapes in order or clicking on the correct side of a computer screen.
The people whose incomes were on the lower end of the scale did the worst when they were told the cost of the hypothetical repair was higher.
When they were thinking about a cheaper, $150 repair, they performed as well as the people with higher incomes.
"These pressures create a salient concern in the mind and draw mental resources to the problem itself. This means we are unable to focus on other things in life that need our attention," said Zhao.
Researchers also gave tests to 464 sugar cane farmers in India, both before their once-yearly harvest when they were short on money and after the harvest when they had more.
They found that the same farmers did better on the tests when they had cash on hand.
"IQ goes up, cognitive control, or error, goes way down and response times go way down," said Mullainathan.
Researchers said the findings suggest that financial assistance is too simplistic of an answer for the problems associated with poverty.
Instead, targeting the concerns that consume the working poor -- such as childcare -- may be more effective.
"Rather than simply looking at these challenges as a lack of money very broadly, if we could break it up and simply target the biggest concerns and deal with them, we might begin to solve other problems as well," said Mullainathan.