The psychology of debt
Phil Grady
Debt management 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
January 2010
The story so far…
• UK has accumulated debt totalling £1.45 trillion:
– secured £1.236tr, £39,799 per household including Mortgage debt
– unsecured £216bn, £17,825 per household
• UK Average household debt to disposable income is 161% - for every
£1 of disposable income, household owes £1.61
• 2015 set to grow to £72,341 per household
• One in three UK adults have insufficient savings to survive a week
without work
Size of the issue
• 1 in 4 adults is living with a mental health problem
• 50% of adults with debts have a mental health problem
• Grant Thornton research 2010 found 100% of clients who
came to us had suicidal thoughts
“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”
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
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
Psychology of debt
1.
2.
3.
4.
Financial debt creates psychological distress
Psychological distress creates financial disorder
The result is combined, unproductive financial and mental pressure
People suffering require emotional understanding and not only
financial guidance in order to cope, plan and recover financially,
emotionally, cognitively and socially
Financial
debt
Psychological
distress
How is debt affecting our clients?
• Debt creates two main unpleasant emotions:
1 Anxiety - accompanied by Depression
2 Shame - accompanied by Guilt
Types of people in debt
People in debt fall into four main categories:
• Life Changing Event - unemployment, illness, divorce,
bereavement. Numbers expected to rise due to Credit
Crunch
• Identifiable neurotic personality profile - problems
expressed through debt eg spending sprees
• Affluenza - ordinary people whose values distorted by
modern life
• Poverty - people unable to break poverty trap
Debt psychology
Symptoms
Physical/Somatic
Psychological
• SLEEP
• EMOTIONAL:
• APPETITE
• COGNITIVE:
• IBS:
• SOCIAL:
• BLOOD PRESSURE:
• CULTURAL:
• IMMUNE SYSTEM: weakened
– stigma
• LIBIDO:
– blame banks,
government,
immigrant groups
• SKIN:
• ABUSE: alcohol (smoking, drugs)
Gender conflicts
Males
Females
• denial
• more overt
• bury head in sand
• emotional
• role of breadwinner
• supportive
• failure as sign of impotence
• some adopt mothering role
• loss of pride
• effects on kids
• frustration
• project anger at others to
conceal self
• impacts on various roles of
mother, partner, lover, shopper,
gatekeeper, colleague
• childlike regression
• guilt at not being aware earlier
Debt pathways
Well being
PRE-CRISIS
Growth and ambition
POST-CRISIS
EXPECTATIONS –
STRUCTURED SOLUTIONS
(eg IVA, pay off the debt,
Bankruptcy) - Optimism
DEBT
PROGRESSIVE
DECLINE
TIPPING POINTS
CONTACT WITH CAB
(ONGOING CRISIS)
Distress
Time
Positive future: New
lifestyle free from debt.
But risk of regression
to pre-crisis, repetition
of past failures
(re-offending)
Debt
Progressive decline
Well being +
Denial
Loss of control
Anxiety
Family conflicts, guilt, anger
Depression
Somatic disorders
Debt
Distress
Advice tipping points
Denial
• Ignoring bills
• Hiding from partner
• Escapism
Realisation
of need
• Loss of utilities threat
of bailiffs
• Partner pressure
• No or limited income
• Paying redundancies, etc.
Action
• Advice
• CAB
• Online search
• Grant Thornton contact
Living with debt
“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”
“I feel lost and hopeless”,
“I’m drowning, suffocating”
“Dark clouds, rain,
storms”, “thunder,
lightning, terrifying”
“Desperate for help and
support”, “to know where I
stand”, “to see light at the end
of the tunnel”, “to have hope
and opportunity”
“You loose 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”
Pathological to adaptive coping
Pathological:
Adaptive
• Robbing Peter to pay Paul
• Download problems with
understanding professional others
(eg Grant Thornton advisors, CAB,
some GPs, Social Workers)
• Involve Partner (family)
• Develop insight into yourself
• Modify beliefs (Cognitive
Behavioural Therapy – CBT)
• Exert control over spending
• Change Lifestyle
• Develop achievable plans
• Physical exercise
• Control over diet and self-abuse
• Denial, avoidance
• Borrowing more
• Juggling credit cards
• Keeping up false
appearances
• Hiding problems from
partner
• Depersonalises