The Psychology of Debt

Transcription

1 The Psychology of Debt Gareth Neill Partner

2 Debt advice research for Grant Thornton Report Peter Cooper Chartered Psychologist, Associate Fellow British Psychological Society, Fellow Royal Society of Medicine, Fellow Market Research Society CEO CRAM International

3 The Economic Malaise crisis ripple Direct impact Laid-off, threat of dispossession, excessive debts (c.10-15%) forced into major economies Unaffected Atmospheric impact Partial impact Partial impact Actual or likely short term working, friends, family directly affected (c.20-25%) Direct impact Atmospheric impact Influenced by mood of the country, media, shops, hearsay (c.50%) Unaffected Claim not to be Influenced or actually benefiting (c.10%)

4 Size of the issue In summary: one in four adults will have a mental health problem at some stage in their lives one in two adults with debts has a mental health problem Therefore time spent helping people address their debt problems can help their overall health and wellbeing, their financial management, and reduce their use of social and medical services

5 Living with debt I feel lost and hopeless, I m drowning, suffocating Desperate for help and support, to know where I stand, to see light at the end of the tunnel, to have hope and opportunity Dark clouds, rain, storms, thunder, lightning, terrifying People don t understand what it feels like until you go through it, you feel socially judged, stigma, it s as if it s a disease You lose focus, your head aches, I feel my head is being squeezed, my tummy turns, like lead in my stomach, it s all questions and no answers Being hunted in my own home, trapped inside, the walls are closing in, like being in prison, when debt knocks on the door, the phone calls never stop, being circled by sharks

6 Before we talk about the psychology of debt we need to explore the psychology behind money

7 Psychology of money Money works like a drug: Rationally it is a tool to achieve goods but is much more than this emotionally and socially. People use personal rules of thumb to take economic decisions Attention paid to immediate short-term than long-term ( money myopia ) We are averse to immediate risk We are influenced by what others do Problem debt illustrates these psychological features in extreme

8 What Do We Mean by Problem Debt? What Do We Mean by Problem Debt?

9 Types of debt Credit: Money that is agreed, under control, repaid regularly and used to benefit Debt: Money that has not been paid and should have been but can be with more or less difficulty Problem debt: Money that cannot be paid without a major changes of lifestyle and financial circumstances, and perhaps not even then Acute problem debt: Problem Debt due to immediate often unexpected financial circumstances Chronic problem debt: Problem Debt that is long-term leading to perpetual debtor mentality Poverty debt: Long-term dependency on Social Security

10 Mutual causation There are therefore established positive correlations between debt and mental disorder, and conversely between mental disorders and debt Mental disorders Debts The causal relationship can go both ways: amongst relatively well-balanced people increasing debts outside their control creates mental disorder for others who are previously disposed to mental disorders from personality, dysfunctional upbringing, or other traumas, problem debt surfaces their disorders

11 Introduction to our Research Introduction to our Research

12 Segmentation Three major psychographic types were identified in the Grant Thornton sample Sample: small businesses, set up by self or with a mate, or self-employed, family Illness, death, or divorce creating financial traumas, loss of earnings and debt, identifiable neurotic personality profiles, either (i) excessively indulgent and unstable upbringing, or (ii) highly restrictive controlling parents

13 Debt psychology symptoms Physical Physical/Somatic/Somatic SLEEP APPETITE IBS: BLOOD PRESSURE: IMMUNE SYSTEM: weakened LIBIDO: SKIN: ABUSE: alcohol (smoking, drugs) Psychological Psychological EMOTIONAL: COGNITIVE: SOCIAL: CULTURAL: stigma blame banks, government, immigrant groups

14 Gender conflicts Males denial bury head in sand role of breadwinner failure as sign of impotence loss of pride frustration project anger at others to conceal self childlike regression Females more overt emotional supportive some adopt mothering role effects on kids impacts on various roles of mother, partner, lover, shopper, gatekeeper, colleague guilt at not being aware earlier

15 Debt pathways Well being PRE-CRISIS Growth and ambition DEBT PROGRESSIVE DECLINE TIPPING POINTS CONTACT WITH A DEBT ADVISOR (ONGOING CRISIS) POST-CRISIS EXPECTATIONS STRUCTURED SOLUTIONS (eg IVA, pay off the debt, Bankruptcy) - Optimism Positive future: New lifestyle free from debt. But risk of regression to precrisis, repetition of past failures (re-offending) Distress Time Debt

16 Progressive decline Well being + Denial Loss of control Anxiety Family conflicts, guilt, anger Depression Somatic disorders Distress Debt

17 Q. How Do We Help Improve Mental Health of Clients who are suffering from Debt? A. We Put Them In CONTROL of the Debt.

18 Options - Putting clients in CONTROL DMP Bankruptcy Client in debt DSA/PIA Re-mortgage/ Secured Loan

19 Participant recommendations to others in their situation Act sooner rather than later, don t bury your head in the sand Go to the Free money advice sector for impartial, independent advice Do your own online research Worry only makes it worse Face up to your debt, don t be embarrassed, be honest Listen and share your problems Recognise you are not alone, there are many others in your situation, there is light at the end of the tunnel Be more positive, even if you have doubts Want to pay back, you didn t mean to do wrong Re-evaluate your life, your beliefs and history Become more future-focused, less preoccupied with the past

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