The psychology of debt Phil Grady

1. The psychology of debtPhil Grady

2. Debt management research for Grant ThorntonReport Peter Cooper Chartered Psychologist, Associate Fellow British Psychological Society, Fellow Royal Society of Medicine, Fellow Market Research Society CEO CRAM International January 2010

3. The story so far… • UK has accumulated debt totalling £1.45 trillion: • secured £1.236tr, £39,799 per household including Mortgage debt • unsecured £216bn, £17,825 per household • UK Average household debt to disposable income is 161% - for every £1 of disposable income, household owes £1.61 • 2015 set to grow to £72,341 per household • One in three UK adults have insufficient savings to survive a week without work

4. Size of the issue • 1 in 4 adults is living with a mental health problem • 50% of adults with debts have a mental health problem • Grant Thornton research 2010 found 100% of clients who came to us had suicidal thoughts • “Time spent helping people address their debt problems can help their overall health and wellbeing, their financial management, and reduce their use of social and medical services”

5. Psychology of money Money works like a drug: • Rationally it is a tool to achieve goods but is much more than this emotionally and socially. • People use personal rules of thumb to take economic decisions • Attention paid to immediate short-term than long-term (‘money myopia’) • We are averse to immediate risk • We are influenced by what others do • Problem debt illustrates these psychological features in extreme

6. Types of debt Credit: Money that is agreed, under control, repaid regularly and used to benefit Debt: Money that has not been paid and should have been but can be with more or less difficulty Problem debt: Money that cannot be paid without a major changes of lifestyle and financial circumstances, and perhaps not even then Acute problem debt: Problem Debt due to immediate often unexpected financial circumstances Chronic problem debt: Problem Debt that is long-term leading to perpetual ‘debtor mentality’ Poverty debt: Long-term dependency on Social Security

7. Financial debt Psychological distress Psychology of debt • Financial debt creates psychological distress • Psychological distress creates financial disorder • The result is combined, unproductive financial and mental pressure • People suffering require emotional understanding and not only financial guidance in order to cope, plan and recover financially, emotionally, cognitively and socially

8. How is debt affecting our clients? • Debt creates two main unpleasant emotions: 1 Anxiety - accompanied by Depression 2 Shame - accompanied by Guilt

9. Types of people in debt People in debt fall into four main categories: • Life Changing Event - unemployment, illness, divorce, bereavement. Numbers expected to rise due to Credit Crunch • Identifiable neurotic personality profile - problems expressed through debt eg spending sprees • Affluenza - ordinary people whose values distorted by modern life • Poverty - people unable to break poverty trap

10. Physical/Somatic SLEEP APPETITE IBS: BLOOD PRESSURE: IMMUNE SYSTEM: weakened LIBIDO: SKIN: ABUSE: alcohol (smoking, drugs) Psychological EMOTIONAL: COGNITIVE: SOCIAL: CULTURAL: stigma blame banks, government, immigrant groups Debt psychologySymptoms

11. Males denial bury head in sand role of breadwinner failure as sign of impotence loss of pride frustration project anger at others to conceal self childlike regression Females more overt emotional supportive some adopt mothering role effects on kids impacts on various roles of mother, partner, lover, shopper, gatekeeper, colleague guilt at not being aware earlier Gender conflicts

12. Debt pathways Well being POST-CRISIS EXPECTATIONS –STRUCTURED SOLUTIONS(eg IVA, pay off the debt, Bankruptcy) - Optimism DEBT PROGRESSIVE DECLINE PRE-CRISIS Growth and ambition TIPPING POINTS CONTACT WITH CAB (ONGOING CRISIS) Positive future: New lifestyle free from debt. But risk of regression to pre-crisis, repetition of past failures (re-offending) Distress Debt Time

13. Progressive decline Well being + Denial Loss of control Anxiety Family conflicts, guilt, anger Depression Somatic disorders Debt Distress

14. Denial Realisation of need Action • Ignoring bills • Hiding from partner • Escapism • Loss of utilities threat of bailiffs • Partner pressure • No or limited income • Paying redundancies, etc. • Advice • CAB • Online search • Grant Thornton contact Advice tipping points

15. “You loose focus”, “your head aches”, “I feel my head is being squeezed”, “my tummy turns”, “like lead in my stomach”, “it’s all questions and no answers” “I feel lost and hopeless”, “I’m drowning, suffocating” “People don’t understand what it feels like until you go through it”, “you feel socially judged”, “stigma”, “it’s as if it’s a disease” “Desperate for help and support”, “to know where I stand”, “to see light at the end of the tunnel”, “to have hope and opportunity” “Dark clouds, rain, storms”, “thunder, lightning, terrifying” “Being hunted in my own home”, “trapped inside”, “the walls are closing in”, “like being in prison”, “when debt knocks on the door”, “the phone calls never stop”, “being circled by sharks” Living with debt

16. Pathological: Robbing Peter to pay Paul Denial, avoidance Borrowing more Juggling credit cards Keeping up false appearances Hiding problems from partner Depersonalises Adaptive Download problems with understanding professional others (eg Grant Thornton advisors, CAB, some GPs, Social Workers) Involve Partner (family) Develop insight into yourself Modify beliefs (Cognitive Behavioural Therapy – CBT) Exert control over spending Change Lifestyle Develop achievable plans Physical exercise Control over diet and self-abuse Pathological to adaptive coping