Consumer Indebtedness Research Articles

Buy Now, Pay Later Loans, Social Norms, and Consumer Indebtedness

The terms associated with new financial products, such as buy now, pay later (BNPL) loans, are often cloudy. Policymakers are concerned because these products are marketed to naïve consumers who may be in financial peril. While financial illiteracy has received attention, it is also important to recognize that consumers are impacted by perceptions of the choices of those in their social network. We elicit empirical and normative expectations in an incentivized experiment to measure what young people think others will do and their beliefs of the beliefs of others. Our experimental participants are more likely to purchase an item with a BNPL loan, as compared to a credit card loan, and the majority believes others see this as a good choice. We conclude that consumers are likely to increase indebtedness when offered a payment scheme that is supported by a social norm.

A feminist approach to fintech: exploring ‘buy now, pay later’ technologies and consumer fintech

ABSTRACT ‘Buy now, pay later’ (BNPL) is a financial technology that is reshaping online consumption by allowing users to split payment for goods over 3–4 interest-free digital installments. While the use and value of BNPL has risen dramatically, it, and other consumer-oriented fintech, has received relatively little critical attention. Demographically, the majority of BNPL users are young and women and its negative impacts are disproportionately felt by lower-income groups, making this a specifically gendered financial technology. In this paper we develop a feminist approach to studying fintech, which we use to present a critical analysis of BNPL drawing on data from the US, UK, and Canada. Through this lens, we explore BNPL’s revenue streams, data collection practices, relative lack of regulation, and how these factors function structurally in the digital payments space, to analyze their impact for consumers and retailers in the context of rising consumer indebtedness and the financialization of consumption. We argue that BNPL is a fintech intervention that attempts to shift consumer practices with distinctly gendered implications for social reproduction, household finance, and everyday relations to debt and money.

Harnessing Data Science for Debt Reduction: Insights from Structural Equation Modeling.

High levels of consumer indebtedness have been a concern in recent years, as they have contributed to rising household indebtedness and put pressure on the country’s financial stability. The general objective of this study was to present actions to reduce the individual’s indebtedness. To achieve this objective, exploratory and explanatory research was carried out. First, there was a review of the literature to find variables and/or models that explain indebtedness, and in a second part, with a quantitative character via structural equations, a questionnaire was applied to a sample of 114 individuals from the Federal District. The variables that most influenced were financial literacy (21.1%), materialism (5.45), and risk perception (3.4%). Among the actions to improve indebtedness are to make the individual literate, explain the risks associated with short-term investments and promises of immediate gain, and the consequences of materialism, which can help minimize indebtedness.

The Deterioration Effects of Consumer Indebtedness on Consumer and Brand Relationships: When Gift Giving is not Appreciated

Most literature on gift giving has focused on positive feelings between giver and receiver in contexts of family members or close friends. This concept is applied to gift giving strategies that used to establish positive consumer and brand relationships. However, these strategies may not result in pleasurable outcomes in all cases because they entail consumer psychological damage such as dissatisfaction and indebtedness. With a different perspective, this study investigates how negative gift giving experiences impact consumer and brand relationships. Online questionnaires were used to collect data in Thailand. Structural equation modelling results showed that negative gift giving experiences cause consumer dissatisfaction and consumer indebtedness. These feelings lead to brand hate and brand avoidance. The results also revealed the mediating role of consumer indebtedness. The results contribute theoretical insight into brand relationships and lead to recommendations on marketing practice.

Helping Those That Hide: Anticipated Stigmatization Drives Concealment and a Destructive Cycle of Debt

Debt accumulation has been linked to materialism, impulsivity, shortsightedness, self-control, and lifestyle preferences. However, applying stigma theory allows novel insights into debt accumulation for middle-class individuals who access a variety of credit-related products. The authors define anticipated stigmatization of debt as the negative judgment and discrimination an individual expects to experience because of their consumer indebtedness. Results from a series of studies demonstrate that although financial stress motivates behaviors designed to reduce debt, debtors who anticipate stigmatization perform a variety of concealment behaviors (secrecy, social spending, and help avoidance) that hinder debt reduction and have negative effects on well-being. To understand how to help these individuals, the authors collaborated with a financial education company, designing a field experiment to examine the efficacy of a behavior change course. Individuals who anticipated stigmatization and formed new social connections in a community-based condition reduced their consumer debt. Although the emotional effect of community-based support has been examined in other stigma contexts, this study is the first to investigate the effect on well-being in a debt context and link social benefits to actual behavior change in terms of debt reduction behaviors and debt repayment.

Effects of teaser rates on new credit card customers’ spending and borrowing: an empirical analysis

PurposeThis study examines the effect of credit card teaser rates on consumer indebtedness and the revenue generated by new customers.Design/methodology/approachA unique dataset from a national bank in the United States of America is utilized to employ a relatively new method called the covariate balancing propensity score matching, which measures the causal effects of teaser rates.FindingsThe results indicate that offering teaser rates improves the revenue generated by customers by indirectly increasing indebtedness. Such offers increase customers' willingness to borrow at regular interest rates that are significantly higher than the teaser rate – the “spillover effects.” Interestingly, customers who pay off their promotional balances before the termination of the promotional period borrow even more at regular rates than customers who do not pay off their balances timely.Practical implicationsThe results can assist managers of credit card companies in measuring the value of teaser rates more accurately. Furthermore, the results have implications for public policy aimed at reducing credit card debt by enhancing the understanding of credit card customers' borrowing behavior.Originality/valueTo the authors' knowledge, this is the first study that documents the direct and indirect impacts of teaser rates on credit card customers' borrowing behavior and the resulting bank revenue.

Consumers’ Perception of The Cost of Credit Default in The Vehicle Finance Industry in South Africa

The risk that a borrower may not fulfil his/her borrowing obligation presents credit owner (lender) a default risk management opportunity to maximize the risk-adjusted rate of return and to maintain minimum exposure to default associated cost. This paper investigated respondents’ perception of the cost of credit default and examines requirements for default risk management (DRM) in the vehicle finance industry in South Africa. It is noted that with an increased level of consumer indebtedness, unstable economy, high unemployment, opportunistic risks like health pandemics, vehicle financing faces a higher probability of default from borrowers. This descriptive investigation utilised quantitative approach using a survey method to collect data from 381 purposive randomly selected respondents who are vehicle finance customers in South Africa, Cape Town specifically. Data collection took place in the Western Cape over a nine-month period, utilising personal interview, and emails to administer questionnaires to vehicle finances’ customers as data collection instruments. Responses received were codified and quantitative data were analysed using the Statistical Packages for Social Sciences (SPSS version 25) The paper found mixed and variable respondents’ perception of the cost of credit default. In conclusion, it is perceived that South Africa debt would become more costly with credit default. It can be recommended that a default risk management intervention be applied to manage credit default risk within the context of the unified credit assessment policy in South Africa.

Regulatory focus and construal level theory on low-income consumer indebtedness: Evidence from an emerging market

PurposeThis study aims to further analyse the decision-making process of low-income consumer from an emerging market by verifying the influence of regulatory focus and construal level theory on indebtedness.Design/methodology/approachAn experimental study was carried out with a design 2 (regulatory focus: promotion vs prevention) × 2 (psychological distance: high vs low) between subjects, with 140 low-income consumers.FindingsOur study points out that the propensity towards indebtedness of low-income consumer is higher in a distal psychological distance. We found that promotion and prevention groups have the same propensity to indebtedness. Moreover, we highlight that low-income consumers are prone to propensity to indebtedness due to taking decisions focused on the present with an abstract mindset.Social implicationsFinancial awareness advertisements should focus on providing more concrete strategies in order to reduce decision-making complexity and provide ways to reduce competing situations that could deplete self-regulation resources. Also, public policy should organize educational programs to increase the low-income consumer's ability to deal with personal finances and reduce this task complexity. Finally, educational financial programs should also incorporate psychology professionals to teach mindfulness techniques applied to financial planning.Originality/valueThis study is the first to consider regulatory focus and construal level to explain low-income indebtedness. This paper provides a deeper analysis of the low-income consumers' decision process. Also, it supports and guides future academic and decision-making efforts.

Os elementos antecedentes do endividamento e a satisfação com a vida

Studies show that times of crisis often result in major changes in society. From this perspective, when observing consumer behavior in the search for understanding and analyzing consumer indebtedness, it was necessary to take into account the individual elements (hedonism, theory of planned behavior, impulsiveness, financial factors, and materialism) that are presented in several studies explained here, as antecedents to indebtedness. In addition, the research also seeks to verify the possible impact of indebtedness on the life satisfaction of young Brazilian university students. Thus, an explanatory model was created and tested. Using a descriptive approach, a questionnaire was developed in the Google Forms tool. At the end of the survey which was carried out between August and November 2020 through dissemination in social media, a sample of 350 elements was obtained. Data analysis was performed using multivariate statistical techniques. The conclusion was that the level of knowledge and financial skills negatively impacts a person's debt potential and influences a more conscious attitude towards the use of credit, leading to smaller and short-term debt. It was also concluded that the level of concern about debt impacts satisfaction with one's own life.

Antecedents of consumer indebtedness in a majority-Muslim country: Assessing the moderating effects of gender and religiosity using PLS-MGA

The aim of this research was to investigate the mechanisms that explain why people choose to buy on credit in a majority-Muslim country context. We propose and test a thorough model explaining the key behavioral and demographic factors leading to attitude towards debt, materialism, and consumer indebtedness. Materialism is assessed as a mediator in the effect of attitude towards debt on consumer indebtedness, and the moderating effects of gender and Islamic religiosity were examined and analyzed using Multi-Group analysis (MGA). Based on data collected from 1,294 Moroccan households, we empirically tested the conceptual model using structural equation modeling. This empirical study is the first of its type to address consumer indebtedness in the MENA region. Our findings allow a better comprehension of consumer indebtedness and have a potential to help in promoting enhanced public policies, better promotional campaigns, and fruitful financial education programs for households in similar markets.

Fiscal Stimulus and Consumer Debt

AbstractIn the aftermath of the consumer debt–induced recession, policymakers have questioned whether fiscal stimulus is effective during periods of high consumer indebtedness. This study empirically investigates this question. Using detailed data on Department of Defense spending for the 2007–2009 period, we document that the open-economy relative fiscal multiplier is higher in geographies with higher consumer debt. The results suggest that in the short term (2007–2009), fiscal policy can mitigate the adverse effect of consumer (over)leverage on real economic output during a recession. We then exploit detailed microdata to show that both heterogeneous marginal propensities to consume and slack-driven economic mechanisms contribute to the debt-dependent multiplier.

Poor health as a precursor to consumer debt distress in South Africa

ABSTRACTWhile it is well documented that severe consumer indebtedness can lead to mental and physical health problems including unhealthy coping mechanisms, the pathways from poor health to financial strain is still an understudied area. Using the National Income Dynamics Study (NIDS) data, this study examines the relationship between poor health and debt distress while controlling for the possible endogeneity between these two conditions and some health-related variables. The results indicate that poor health significantly increases the probability of financial strain. Insofar as poor health is associated with catastrophic healthcare costs and income deprivation, for instance through inability to work, other factors affecting health such as socioeconomic status and insurance might shape the contours of consumers’ debt performances in the face of health risk. Ultimately, health may be creating a vicious circle in which poor health affects the capacity to earn income and accumulate assets, which limits access to quality healthcare.

Antecedents of indebtedness for low-income consumers: the mediating role of materialism

PurposeThe purpose of this is to propose a model in which materialism is a mediator of the effects of self-esteem, impulsiveness, attitude toward debt, attitude toward credit card and economic vulnerability on consumer indebtedness. The effects of financial knowledge, financial ability, credit card use and demographic variables are also taken into account.Design/methodology/approachSurvey data from a sample of 1,245 low-income consumers from Brazil were used to test the hypotheses using structural equation modeling.FindingsFirst, materialism has a significant effect on consumer indebtedness; at the same time, it is influenced by self-esteem, impulsiveness and attitude toward debt. Second, materialism acts as a mediator, e.g. higher impulsiveness triggers materialism, which influences debt level. Third, indebtedness is higher for women and those who use a higher number of credit cards and are more educated.Social implicationsFinancial education programs should work to increase individual’s perceived ability to manage money, as the individuals who feel less able to manage their personal finances alone (i.e. lower financial ability) presented higher indebtedness.Originality/valueThis study investigates consumer indebtedness by addressing factors that have been analyzed independently in the literature. The research combines psychological, financial and economic factors with credit card use and demographic variables to explain consumer indebtedness. Moreover, the study supports the mediating role of materialism for the antecedents of consumer indebtedness, e.g. impulsiveness and attitude toward debt.

The financialization of Quebec student debt and the theory of monetary circuit: a case for a reinterpretation?

This paper examines the increase in student bank indebtedness in Quebec over the last three decades. The increase in this form of indebtedness is compared with the more general rise of household and consumer indebtedness under financialized capitalism. The banks’ origin of student debt through Quebec’s state-subsidized loans programs, L’Aide financière aux études (AFE), is identified through an institutional history of this program. I then refer to post-Keynesian and circuitist literature to identify the broader monetary circuit with which student debt is embedded. The paper presents original data on outstanding student loans, interest payments, and the public and private actors managing student indebtedness. It concludes with an overview of Quebec student indebtedness related to private credit products.

Debt of high-income consumers may reflect leverage rather than poor cognitive reflection

PurposeA recent population-wide study for Germany, where credit lines on current accounts are available to 80 percent of the population, finds that overdraft debt is more likely for people who give intuitive but incorrect answers on a cognitive reflection test. This suggests that those consumers in debt have poorer cognitive reflection and, thus, lack of self-control. The Germany study finds that “surprisingly, the level of income does not play a central role.” The purpose of this paper is to discriminate the consumers in terms of their income by considering two experiments.Design/methodology/approachIn the first (pilot) experiment, the authors do not discriminate consumers in terms of income and, as result, replicate the Germany study. In a follow-up experiment, which assembles a high-quality sample of high-income consumers, the authors find debt can no longer be explained by poor cognitive reflection.FindingsApparently, high-income consumers treat debt as mere leverage, as companies do.Originality/valueNot all consumer indebtedness can be caused by lack of self-control. High-income consumers are likely to contract debt as leverage. This resembles rational risk taking.

Fiscal Stimulus and Consumer Debt

In the aftermath of the consumer debt-induced recession, policymakers have questioned whether fiscal stimulus is effective during the periods of high consumer indebtedness. This study empirically investigates this question. Using detailed data on Department of Defense spending for the 2006-2009 period, we document that the open-economy relative fiscal multiplier is higher in geographies with higher consumer indebtedness. The results suggest that fiscal policy can mitigate the adverse effect of consumer (over)leverage on real economic output during a recession. We then exploit detailed microdata to evaluate aggregate demand and aggregate supply-side economic mechanisms potentially underlying this result.

Exploring emotions and irrationality in attitudes towards consumer indebtedness: Individual perspectives of UK payday loan consumption

The aim of this research is to explore contemporary consumers’ emotions and irrationality in attitudes towards indebtedness, using the UK payday loan industry as a focus point. UK consumers’ have recently experienced a significant financial crisis, the result of which is expected to alter consumers’ spending, saving and borrowing habits. By using existential-phenomenological interviews to discuss individuals’ experiences of these activities, we observe some of the key issues emerging from this context. A primary theme is the influence of emotions on decision making, and how this shapes ‘irrationality’. This article aims to draw attention to this emotive thinking, which may be significant in thinking about how payday loans are communicated to users in the future.

A Data Mining Framework to Model Consumer Indebtedness with Psychological Factors

Modelling Consumer Indebtedness has proven to be a problem of complex nature. In this work we utilise Data Mining techniques and methods to explore the multifaceted aspect of Consumer Indebtedness by examining the contribution of Psychological Factors, like Impulsivity to the analysis of Consumer Debt. Our results confirm the beneficial impact of Psychological Factors in modelling Consumer Indebtedness and suggest a new approach in analysing Consumer Debt, that would take into consideration more Psychological characteristics of consumers and adopt techniques and practices from Data Mining.

Consumer indebtedness of public servants in South Africa: Evidence from the department of health in the North West province

The primary objective of this study was to determine the consumer debt level of public servants in the Department of Health in the North West Province, South Africa. The results of the study indicate that most public servants rely almost entirely on the public service remuneration to survive and for debt repayment. The results of the survey also indicate that 96% of public servants in the Department of Health in the North West Province are over-indebted. The respondents also perceived their income to be insufficient and thus resort to credit to maintain their required standard of living. The results also indicate that 63% of the respondents have a debt-income ratio above 20%. The reason for falling into debt is mostly due to lack of funds and insufficient income. The most common types of consumer debt found among the respondents included store cards (26%), followed by personal debt from banks (18%), while vehicle loan debt (37%) consumed the highest rand value of total debt among respondents. Personal loans from banks (21%) comprised the second highest debt value incurred by the respondents. It could be argued therefore that most public servants are over-indebted and could be trapped in a debt cycle if no additional income is provided or if they do not embark on some kind of personal financial management education

Household Over-Indebtedness: Definition and Measurement with Italian Data

The last decade has seen significant increases in consumer indebtedness in western countries, causing concern about its economic and social impact. In particular, over-indebtedness is attracting attention from national and international authorities because of its potential effect on both the sustainability of households' indebtedness and the stability of the financial system. From a social point of view, the excessive accumulation of debts accompanied by households' liquidity constraints causes a deterioration in households' social and economic well-being, thus leading in the long term to social exclusion and poverty. The aim of this paper is to present and analyze the main measures of over-indebtedness used in the literature. In particular, the paper uses data from the Italian Survey of Household Income and Wealth to extend the existing knowledge about the possible ways of measuring economic difficulty and over-indebtedness. The traditional and the new measures of over-indebtedness are subsequently compared with the measures of poverty in order to disentangle the relationship between the two phenomena.