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This Is Your Brain on Debt


Psychological research provides new insight on the decisions that lead to crippling consumer debt.

CREDIT: Flickr / Elizabeth Brossa

Science has started to prove what most progressives already know: Escaping debt and poverty takes a lot more than pulling yourself up by your own bootstraps.

Earlier this month, The New York Times reported on a growing scientific understanding of how desperation draws people into lifelong debt traps.

“The usual explanations for reckless borrowing focus on people’s character, or social norms that promote free spending and instant gratification,” Benedict Carey wrote. “But recent research has shown that scarcity by itself is enough to cause this kind of financial self-sabotage.”

The average American borrower owes about $5,000 in credit card debt, the average college senior graduates owing more than $25,000, and American debt currently exceeds yearly household income by 54 percent.

In a paper published last year in Science, Anju K. Shah, Sendhil Mullainathan, and Eldar Shafir wrote that “resource scarcity creates its own mindset, changing how people look at problems and make decisions.” In a series of experiments, Shah, Mullainathan, and Shafir replicated the conditions that cause humans to engage in counterproductive borrowing.

One experiment featured a “Family Feud”-style game, in which participants were asked trivia questions in rapid succession. Some participants were allowed to extend their time by “borrowing” against time allotted for future rounds, while others were not allowed to borrow.

It turns out that desperation and stress caused people not only to borrow, but to borrow badly: At the end of the game, the participants who were unable to borrow finished with higher total scores. 

This research should be valuable ammunition for progressives fighting for economic justice. If psychologists can recreate a debt trap in a lab, it suggests that onerous debt isn't a failure of individual will or intelligence, but rather a standard human reaction to scarcity.

But unscrupulous lenders understood this psychology for years, to their profit, which further drives the cycle of debt and poverty.

"Access to credit is unequal, as are the terms," said Nicole Hala, an organizer with Strike Debt, and an adjunct professor of sociology at the City University of New York. "If people can’t qualify for bank loans or anything better and payday loans are their only option, they will take out payday loans."

A number of efforts to create a more just lending system are underway. Strike Debt created the Rolling Jubilee, a massive debt-buyback initiative, and the Debt Resistors' Operations Manual, which gives consumers tips on how to avoid debt traps. 

And student loan refinancing has been proposed to push Congress to ease the burden on young people.

"Public goods such as education, health care, and housing—we think that folks should not have to go into debt to acquire these basic needs," Hala said.

Chris Lewis is a reporter at Campus Progress. Follow him on Twitter @chris_lewis_.

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