The Psychology of Borrowing and Over‐Indebtedness

Ranyard, Rob; McHugh, Sandie; McNair, Simon

doi:10.1002/9781118926352.ch14

Cited by 13 publications

(15 citation statements)

References 63 publications

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“…Previous research has shown that most borrowers manage loan repayments (Ranyard, McHugh, & McNair, ). Yet, this may not be true if new markets for easily accessible high‐interest loans make young adults more frequently borrow to purchases of consumer products (e.g., Autio, Wilska, Kaartinen, & Lähteenmaa, ).…”

Section: Introductionmentioning

confidence: 99%

Young adults’ borrowing to purchases of desired consumer products related to present‐biased temporal discounting, attitude towards borrowing and financial involvement and knowledge

Gärling

Michaelsen

Gamble

2019

Int J Consumer Studies

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The aim is to investigate how present‐biased temporal discounting caused by feelings of financial deficit, attitude towards borrowing and financial involvement and knowledge determine young adults’ likelihood of borrowing to purchases of desired consumer products. A sample of 273 young adults aged 18–30 years answered an online questionnaire including experimental treatments to induce present‐biased temporal discounting, followed by questions about attitude towards borrowing, financial involvement/knowledge and financial resources. In different treatment conditions, participants rated the likelihood of borrowing to purchases of desired consumer products at prices judged to be unaffordable or to replace purchases of equally expensive products in the future but not immediately. In a control condition, participants rated the likelihood of borrowing to an equally expensive, already purchased product to be paid immediately. A higher likelihood of borrowing to purchases of the desired and already purchased unpaid products was observed, but the difference to the needed products was not statistically significant. Likelihood of borrowing was strongly suppressed by a negative attitude, in all between‐group conditions equally influenced by self‐assessed financial resources but unaffected by financial involvement/knowledge. Both financial involvement/knowledge and a negative attitude decreased choices of months of instalment payments with the consequence that the monthly repayment cost increased.

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Section: Introductionmentioning

confidence: 99%

Young adults’ borrowing to purchases of desired consumer products related to present‐biased temporal discounting, attitude towards borrowing and financial involvement and knowledge

Gärling

Michaelsen

Gamble

2019

Int J Consumer Studies

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“…Ranyard et al. (2017) give a fuller introduction to the psychology of debt and credit in general, while Hershfield et al. (2015) have reviewed the specific case of revolving debt (mainly, credit cards).…”

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confidence: 99%

“…Because the present review is oriented towards policy change, it focuses on evidence that is most relevant to policy, although that does include dealing with some prominent strands of research that have been invoked in policy discussion, but in my view do not yet offer any basis for policy recommendations. Ranyard et al (2017) give a fuller introduction to the psychology of debt and credit in general, while have reviewed the specific case of revolving debt (mainly, credit cards). Zinman (2015) reviews consumer debt from an economics perspective.…”

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confidence: 99%

Debt and Overindebtedness: Psychological Evidence and its Policy Implications

Lea

2020

Social Issues Policy Review

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This paper reviews psychological studies of real-life use of credit, debt, and overindebtedness, with the aim of making policy recommendations that could reduce the damage done by debt to both individuals and society. The overall level of debt in society is heavily influenced by the level of economic inequality and social insecurity, and no psychological factor can prevent debt if excessive socioeconomic disadvantage is not addressed. Within that constraint, psychological precursors to debt problems, psychological impacts of debt, and psychological strategies to help people get out of debt can be identified. Research results in these areas are used to formulate a series of recommendations that could help mitigate debt problems.

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“…While funding the purchase of a home through a mortgage is beneficial for most consumers as it enables smoothing of consumption over time (Modigliani, ), taking on too much debt may result in severe negative consequences, for both the individual and society. On an individual level, excessive borrowing can, for instance, lead to severe personal consequences, such as depression, stress and anxiety (Ranyard, McHugh, & McNair, ). As for society, households that are highly leveraged bring risks to the economic system that could lead to severe consequences.…”

Section: Introductionmentioning

confidence: 99%

Determinants of indebtedness among young adults: Impacts of lender guidelines, explicit information and financial (over)confidence

Hauff

Nilsson

2019

Int J Consumer Studies

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For most people, borrowing money is a necessary aspect of life in the 21st century. Wisely handled, loans give consumers access to consumption too expensive for most individuals to purchase with cash, such as homes and cars. However, history shows that taking on too much debt can be detrimental for the individual consumer as well as society as a whole. In this paper, we investigate determinants of over‐indebtedness among young adults. We perform three studies in a setting focused on buying and borrowing money for a home. We show that, compared with an overall mortgage amount, explicit information about monthly payments reduces the tendency to take on too much debt (Study 1), that the amount borrowed depends on standards regarding the loan amount communicated through guidelines from the lender (Study 2), and that borrowers who are overconfident about their financial abilities tend to borrow more than less confident individuals (Study 3). These determinants and their policy implications are discussed.

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The Psychology of Borrowing and Over‐Indebtedness

Cited by 13 publications

References 63 publications

Young adults’ borrowing to purchases of desired consumer products related to present‐biased temporal discounting, attitude towards borrowing and financial involvement and knowledge

Young adults’ borrowing to purchases of desired consumer products related to present‐biased temporal discounting, attitude towards borrowing and financial involvement and knowledge

Debt and Overindebtedness: Psychological Evidence and its Policy Implications

Determinants of indebtedness among young adults: Impacts of lender guidelines, explicit information and financial (over)confidence

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