The Psychology of Debt and Materialism

Debt crisis, debt bomb, financial crisis – you’ve heard it everywhere. And it’s still going on. The European debt crisis may not make the headlines every night (seriously, the viewers can’t take it anymore) but the crisis is far from over. Blaming it on the spendthrifts of Acropolis may seem like a neat idea, but admittedly our Hellenic cousins are not the only ones who have been on a finance-fuelled spending spree.

Carmen Reinhardt, a University of Maryland economist, and Harvard professor Kenneth Rogoff published a book called This Time It's Different: Eight Centuries of Financial Folly three years ago. They report that 90% public debt-to-GDP ratio is a so-called critical threshold, beyond which problems are of the worrying scale[1].

Consumerism is a fundamentally materialist social order, holding buying and consumption as the most important ways of action in society. Whether you like it or not, we live in a consumerist society at the moment. Interestingly, both consumption, use of resources and debt levels have risen considerably in the last decade (see graphs).

source: http://en.wikipedia.org/wiki/File:World_GDP_Per_Capita_1500_to_2000,_Log_Scale.png

As interesting as this is economically, a more important question in my opinion is why are we so indebted? What makes the debt rack up so fast?

In economic psychology, it has long been thought that materialism may well be connected to increased debt on a personal level. In this context materialism is a psychological stance, mainly meaning that a materialist person places a lot of value on things and possessing them. Usually studies differentiate between subjects with high and low materialism.

Is the connection of materialism and debt proven? In a study[2] Watson showed that materialism is correlated with laxer attitudes toward debt. In another study[3], Richins showed a connection between materialism and behaviors linked to credit overuse. So, the evidence is convincing in the way that materialism probably can be linked to higher debt levels, at least to some extent.

Quite frankly, linking this with the racking up of public debt is just an idea – it has never been proven (or even researched, to my knowledge). But there’s still a very important interplay of society and the individual here: namely, the process of acquiring a materialist psychological stance in the first place.

As with any belief system, there are two ways we can acquire materialism: either it’s in the genes or we have learned it through society. I can’t see the genetic argument really working for materialism. The world of our ancestors was hardly very focused on items, and hence “genetic materialism” seems to have very little face validity. Therefore, the only sensible conclusion is that we have learned the belief. And that is exactly the link that could justify the connection to global debt.

What if our global debt is also influenced by the same materialist beliefs? What if that’s why the system tries to get more than it can afford? And, more importantly, what will happen once we figure out we’ll never pay back our public debt?

Interesting, and scary, indeed.

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[1] http://www.forbes.com/forbes/2010/0208/debt-recession-worldwide-finances-global-debt-bomb.html

[2] Watson, John J. “Materialism and Debt: A Study of Current Attitudes and Behaviors.” Advances in Consumer Research 25, no. 1 (January 1998): 203–207.

[3] Richins, Marsha L. “Materialism, Transformation Expectations, and Spending: Implications for Credit Use.” Journal of Public Policy & Marketing 30, no. 2 (Fall 2011): 141–156.

Capitalism and Supernanny lessons

In a TV show called Supernanny, Jo Frost visits troubled parents and teaches them how to get their kids back in order. Usually, as you would expect of reality TV drama, the situations look hopeless at first, but the Supernanny intervention gives the parents the tools they need to gain control of the situation at home. And then they lived happily ever after.

The would-be reality of the show aside, most of the episodes focus on pretty much the same issues: the mother or father is unable to discipline the kids, resulting in total chaos and mayhem at home. The kids punch the parents, beat each other up, throw stuff etc. The parents look like an ambushed pack of new recruits – they have no idea what they’re doing and what they should do. The remedy is always the same: teaching the parents to say NO to their child. No, you can’t do that. No, that’s wrong. No, you can’t have that.

What are the parallels for our society? It seems to me that capitalism is one of the few truly global phenomena in our world. Capitalism is the system of distributing resources so that we can survive. Sounds like a mother to me. Our world, too, seems not too unlike a Supernanny visit to Crawley: the peace and quiet is continuously pierced by screams of “But I WANT that!” The demands never end. 

In Supernanny the solution is to teach the parents to discipline the kids. In our system that would be to teach the “mother” – capitalism – to tell us no at some point. The problem here lies at the heart of capitalism. It is a philosophy of saying yes always, when there’s enough wanting. If enough people in the world want purple apples, we’re soon enough going to have purple apples.

The solution in this case could be analogous to the Supernanny show: teach the parent to say no. In our case, that would be teaching capitalism to say no. To say no, when we want too much or wrong things.

Now, I don’t know how to do that. A start could be including actual environmental costs in the cost of products. But to take such schemes further would be very complicated. As an example, think of a burger. To an overweight person that burger is less of a good choice than to a balanced-weight person. But to reflect this in the pricing seems impossible. There are infinite variables to take into account.

Unfortunately, we have no Supernanny to call on. There’s nobody to help us from the outside. There’s only us, and we have to take care of this mess ourselves.

Therefore, another alternative solution would be that we, the child in this situation, develop and learn to have more sensible wants. We could try do develop out of the phase in which we feel jealous of everything somebody else has and we don’t.  We could try to learn to want “the right things”. That means wanting to want, or meta-wanting. But then again, I don’t know how to do that either. Dammit.

Learning Narratives

We humans are creators of stories, and learning makes no difference. Everytime I succeed – or fail – I receive some feedback about who I am. That feedback I use, often unconsciously, to create a narrative, or story, about who I am. This can sometimes create problems: too many failures in a row at math and I might create a narrative portraying me as a student, who is bad at math. If I start believing that I’m bad at math and therefore I failed, I’m in the risky area.  The problem is this narrative can become self-fulfilling. For if I failed, because I suck, there seems to be little light regarding future tests. My inability of doing math starts to look like a static quality of myself. You can notice this happening if you hear me saying “oh, I’d so love to ace my next math test, but it’s hopeless - I’m just bad at math”.

But, the critic might argue, doesn’t a bad result show that, in fact, you are bad at math? In a way, it does. But it does not show that I’m permanently hopeless. A horrible result sure proves I didn’t get it all right – but there’s no reason it couldn’t change next time. Maybe I can create a narrative portraying me as bright math student who just wasn’t paying attention, therefore failing a test. Perhaps the next exam is going to be a turnaround leading me to a future where I’m superb at math! Who knows what will happen?

Now, I don’t know if all this made any sense, and frankly, just now I’m too tired for any rewriting. Blame the end of the exam period, if you will. I hope you got something out of it.

Tomorrow: last exam of this semester and then off for some well-earned Christmas holidays. Hopefully I’ll have more time and energy to read something besides exam stuff. Maybe I’ll manage to crunch a post or two on the way.