I recently read Scarcity: Why having too little means so much by Sendhil Mullainathan and Eldar Shafir. Since then I have been recommending it to friends in the debt advice world. I think Scarcity is a very interesting read for anyone interested in personal debt advice and policy in Britain. Many of its arguments are directly applicable to the idea of introducing a breathing space for debt that … [Read more...]
The psychology of debt
Advertisers spend a lot of time and money working out how to persuade you to spend lots of money - that may well be how you got into debt in the first place! If you find out a bit about how your mind works, it may help you spot the mental traps that stop you from getting out of debt.
Late December and early January are the best time of the year for sales. But it's all too easy to get caught up in the rush and end up with something that isn't such a good bargain at all. So how do you spot the real bargains? And how do you avoid being tempted into buying things you will later regret? Here are seven reasons why you should look hard at those tempting Sale! stickers before … [Read more...]
Yesterday the FCA issued an interim report for its Credit Card Market Study. It feels the overall market is working well however it is worried about the number of people who appear to be just above the default level: around 2 million people have "persistent levels of debt", normally using 90%+ of their credit limit, suggesting that they may be struggling to repay; another 1.6 million … [Read more...]
The Hawthorne Effect is the name given to the tendency for humans to change their behaviour simply because they are being studied. This is usually a nuisance for social scientists, who have to try to eliminate it from their experiments. But I'm interested in the psychology of debt - what makes it harder or easier to tackle a debt problem - and I think you may be able to make use of the Hawthorne … [Read more...]
Loyalty cards encourage customers to come back for their next coffee / pizza / paperback. If you are trying to get rid of problem debt, then you need to beware of being enticed to overspend your budget, that's obvious! But in this article I want to look at some of reasons why companies use reward programs, because exploring the psychology involved reveals three factors which could also really … [Read more...]
Have you heard of "present bias"? It's not wanting a jumper for your birthday rather than a bottle of wine, it's a behavioural economics term for a self-delusion that everyone suffers from to some extent. It affects many areas of life and one of the most important is making poor decisions about money - present bias makes it easy to get into debt and much harder to climb out. All too often we … [Read more...]