Connecticut College Magazine · Winter 2008

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The Psychology of Debt

The Psychology of Debt

A professor´s new book explores the why of our collective empty pockets

by Theresa Sullivan Barger


With home foreclosure rates breaking records and millions of Americans carrying unprecedented levels of debt, some might assume that Americans have weak self-control and have been swallowed by consumerism.

But in a new book, Connecticut College Professor of Psychology Stuart Vyse says it´s not that simple. After years of researching the psychology of debt, he concludes that several factors have conspired to separate Americans from their money and make it harder than ever for them to live within their means and save.

“The shelves of your local bookstore are filled with books aimed at bringing you financial stability and helping you get out of debt, but the majority of these books make the same mistake made by many generations of economists: they assume you are rational,” Vyse writes in Going Broke, Why Americans Can´t Hold On to Their Money (Oxford University Press, 2008).

So much has changed in American society since the 1970s that today´s consumer needs much more self-control than did earlier generations, he writes. Before that, we didn´t have 24-hour access to cash, ubiquitous credit card use, and constant temptations to purchase at big-box stores, online, through catalogues and from TV shopping networks.

“Over the last 30 years we have gradually designed an economic and social world that puts inordinate challenges on our self-control,” he says in an interview. Credit card companies offer debt to people who can´t afford to pay the bills, and then the individual is held responsible. But in an earlier era, the conventional wisdom was that if a banker gave someone a loan and that person defaulted, the banker had made a mistake, Vyse says. “The credit card industry would like to shift the responsibility onto the individual and not take any of the blame.”

“America has a troubled relationship with credit and debt,” he says. The underlying problem that has plagued people for decades is commercial debt. The majority of people who declare bankruptcy and face foreclosures are drowning in credit card and other unsecured debt.

After publishing an earlier book on the psychology of superstition, Vyse wanted to write something with greater social significance, a book that had the potential to change readers´ lives for the better. The editor of his previous book suggested that a psychological analysis of the current epidemic of indebtedness would make an important contribution. After considering other projects, Vyse, who himself had gone through a period of substantial credit card debt, eventually came back to the American struggle to stay in the black.

In Going Broke , Vyse points to a number of economic trends that have made it harder for lower- and middle-income people to make ends meet. For many on the lower half of the income curve, real wages have declined, job instability has increased, underemployment is more common, and their health coverage is unable to address skyrocketing medical costs.

“Looking at the problem from a psychological point of view,” he says, “our social and economic environment is designed to make it difficult.”

Vyse concludes people could evade overwhelming debt by resisting the many temptations to spend and saving for a rainy day. “If you don´t have savings but you have a credit card, then all the emergencies of life end up as debt,” he says. He suggests individuals avoid commercial environments, use only one bank credit and carry only small sums of cash.

While the federal government is hoping Americans spend their tax rebates to stimulate the economy, Vyse says those with debt should pay it off and those without debt but little savings should put the rebates toward savings.

The long-term, societal solution to the debt crisis, he suggests, is a policy shift to encourage saving. Savings plans that require people to consciously put funds into their savings account don´t work unless busy people remember to do it, he writes. Yet when employers automatically deduct a percentage of employees´ paychecks and deposit it in a retirement savings account, the vast majority stays with it and doesn´t opt out, Vyse writes. “The goal is to make savings automatic and invisible,” he says. “It´s going to take more than individual effort to fix an economy dependent upon consumer spending.”

Vyse suggests tightening banking regulations to keep people from getting into trouble with debt. Credit card companies offer debt to college students who have little or no income, he notes. Although there is a consumer movement aimed at getting the credit card industry away from college campuses, he says, the banks are pushing credit dependence to lower ages by offering high school kids a credit card that is co-signed by a parent.

Vyse also says that establishing universal health care would help remove a factor that contributes to financial insolvency, since those without adequate health insurance can easily lose everything.

After examining case studies of individuals troubled by debt and reviewing scholarly research into both the internal struggles and the external forces that affect our personal balance sheets, Vyse concludes that blaming the individual won´t solve the problem.

“Increasingly, the United States economy has sacrificed the physical, psychological and financial health of its citizens in the interests of a relatively few wealthy businesses,” Vyse writes. He suggests Americans adopt a community-minded attitude, “acknowledging that some of us have a better starting point than others, that our choices are not all equally free, and that if we want to live in a world that honors not just the lucky among us but also the unlucky, we must make it harder for the strong to prey upon the weak."


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