"the Psychology Of Borrowing: How Students Perceive And Manage Loans" - The amount and rate at which people in the West are borrowing money has grown exponentially. This is in part due to the reduction of loans and debt as a concept through many leveraged loans, such as those used to finance university education or buying a house. Although attitudes toward debt vary by population and era, as seen during the Great Depression of the 1930s and the Great Recession (2007-2012), It is impossible to deny that the behavior of borrowers has changed during the last half of the 20th century and into the 21st. However, not all debts are in the same way, or the same amount, and not everyone is able to pay the loans. This article will attempt to provide an up-to-date review of the literature that outlines how psychological factors influence borrowing behavior. . The article will begin with a social level of analysis and then narrow down to human behavior and then the mental process that underlies these behaviors.
Society's attitudes toward debt have changed dramatically over the past few years, and it has become increasingly acceptable to carry high levels of debt (Nofsinger, 2012). This is accompanied by a reduction in the minimum wage from 20% before 1956 down to 3% (Green & Wachter, 2005), it is possible families put down their savings to build up more debt. Often related to this, argued Brinig & Buckley (1998), the norms about bankruptcy changed to remove many of their symptoms. Although the economic crisis and hardship seem to prevent borrowing behavior, but the generations that grow up when the hardship is reduced continue to be accustomed and accept the high level of debt. Nofsinger (2012) stated that in the United States, from 2000 to 2007, household debt increased significantly from $7 trillion to $13.6 trillion, which he stated was ' It was the government's policies because of debt spending that helped grow the US economy from $10 trillion to $14.3 trillion. Although after the Great Recession families seemed to be focused on saving and paying off their debt, the culture seems to have changed dramatically and it is impossible to use it.
"the Psychology Of Borrowing: How Students Perceive And Manage Loans"
Society's acceptance of high levels of debt seems to be attractive to some small groups. Research by Lea, Webley & Levine (1993) examines, in part, the possibility of knowing that others are in debt when considering the level of personal debt. Their results show that there is a lot of public support and sympathy for debt among debtors, and these people are more familiar with other people and families in the same financial situation, and It cannot be assumed that others do not accept their own debts. According to the authors, since the high level of debt is caused by the difficult economy, individuals who have a lot of debt will be more likely to know others in similar situations, to understand and greet them, increasing the above mentioned situation in small circles.
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In contrast to social acceptance, which portrays debt as a normal and acceptable, if painful part of life, social comparison may encourage debt by increasing the need to self-expression through social interaction and enhancing one's power and dignity (Dittmar & Dury 2000; Kamleitner, Hoetzl & Kirchler, 2012). In the course of 32 interviews to look at the characteristics and provide information of the competition and the planning of the purchase, Dittmar & Dury (2000) established that, although consumers may regret the money spent to get products, the psychological and social characteristics of those things are very important. responsibility. Groenland & Nyhus (1994, in Kamleitner, Hoetzl & Kirchler, 2012) provide further support for this, stating that those who were able to make good social comparisons about themselves are not used to the present and reduced future events less, and therefore less. tend to use credit.
Research by Palan, Morrow et al., (2011) shows that consumerism is significantly related to the use of credit cards in a sample of college students in an effort to define themselves in the social relations through consumption. That is, credit cards allow them to borrow money to strengthen their sense of self-worth, according to previous literature that found that self-worth, strength and honor was associated with consumerism (Norum 2008; O'Guinn & Faber 1989; Roberts and Jones 2000). Impulsive spending and borrowing behaviors are also influenced by lack of control (Livingstone & Lunt, 1992). One of the ways to improve this problem seems to be the improvement of financial management plans. As stated by Kamleitner, Hornung & Kirchler (2011), the reduction of impulsivity seems to depend largely on the efficiency and coordination of money management, which leads to the reduction of the power to necessary for the management of expenses and loans, and finally the prevention of indebtedness.
Interest periods are a strong predictor of collecting and borrowing behavior. Although those who can delay gratification seem to be better when it comes to their spending habits, research still shows that these behaviors are manifested as changes from the strength of myopic impulses (D' Orlando & Sanfilippo, 2007). Kassam, Gilbert, Boston & Wilson (2008) show that, when considering short-term decisions, people tend to underestimate future benefits and costs compared to their current or future plans. soon. In further support of this, Webley & Nyhus (2008) say that present rewards are more valued than their future counterparts, and that future costs are less important in comparison. at current prices. Interestingly, Livingstone & Lunt (1992) found that those who owed a lot of money knew the future problems that debt would bring, but prioritized the need to earn now, instead of saving for them - however, once they are deep in debt they seem to prioritize the good things that come from borrowing.
However, hard times work differently with long-term mortgages. Most of the empirical evidence until recently suggested that households choose mortgages to satisfy consumption, discounting events. in the future. That is, future events become less weighted over time (Campbell & Coco, 2003). However, recent work by Atlas, Johnson & Payne (2017) shows that these so-called discount rates vary over time. For example, they note:
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"Although most people like it, say $60 now is better than $64 in 4 weeks, many people prefer $64 in 6 weeks than $60 in 2 week. Note that the only change in these two option sets is the addition of 2 weeks to each delay, indicating that the earlier the result, the $60 now in the first option is more weighted. compared to $60 per second", p. 6
In their analysis, they show that those who are more biased in the present and those who are more discounting in the future (two distinct indicators ) borrowed a large portion of the value of their home, more flexible mortgage interest that was reloaded, and more likely to be 'underwater' with their mortgage. However, when it came to the question of whether to get out of a mortgage, the present bias and the future discount worked in different directions. Because the cost of defaulting on a mortgage is now or in the near future, current-biased households were more likely to continue paying. the mortgage though the equity is not good. In contrast, families with reduced futures were more likely to get out of the mortgage, because the cost of paying off the debt and owning the house was reduced mentally. These things show how time changes and produces different results over time, and tempts people to take out bad mortgages that they can't pay.
Individuals use a variety of money management styles, from careful planning to carelessness. Livingstone & Lunt (1992) found that flexibility in money management plans is associated with higher levels of borrowing, but those who stick to their plans do better. The simplicity of the guidelines also seems to have a bearing. To put it bluntly, simple strategies do not seem to save enough money in the real world, with Hayhoe (2002, in Kamleitner, Hoetzl & Kirchler (2012)) and Webley & Nyhus (2001) finding all those who are higher in debt use simple methods of money management. Interestingly, the formulation and execution of financial management plans seem to be associated with higher levels of conscientiousness (Donnelly, Iyer & Howell, 2012), one of the five highest in character literature (Costa & McCrae, 1985)
Personality, which can be defined as a semi-permanent set, is an inherited set of behavioral, cognitive and emotional patterns, which also has a significant impact on how people borrow and spend money. The first field research conducted by Schmölders (1966; in Nyhus & Webley, 2001) on a sample of West German families found that conscientious, disciplined people always saved money and more, sometimes it's twice as stressful. and gentle people. More recently, Brandstätter (1996) and Brandstätter & Güth (2000) confirmed these findings, generalizing three important factors related to behavioral conservation: High levels of Introversion, low levels of Neuroticism, and high levels of Conscientiousness.
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However, these findings should not be taken as the be-all end-all of a deeply complex phenomenon. Nyhus & Webley (2001) reported in their research high levels of extraversion (measured in contrast with introversion above), a component of bipolar.
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