The Behavioral Science Behind Paying Your Debts
My brother and I have very different attitudes when it comes to money.
I, for one, have ingrained savings habits, with a very structured routine at the beginning of each month where I make sure all of my obligations are paid. I keep a close eye on my balances, hardly ever carry credit card debt, and am always far from reaching my credit limit.
My brother, on the other hand, has a somewhat different mindset. He’s very optimistic about his future income and has no issue with paying penalties on his unpaid monthly credit card balance. He is happy without reminders of payment dates and doesn’t feel the need for a structured routine or a spreadsheet to keep track of his financial obligations.
I have always wondered why my brother and I have such different approaches toward our finances. After all, we had the same upbringing: we were born just 18 months apart, raised under the same roof, and even attended the same schools up until adulthood. Even now, we both live what one would consider generally “responsible” lifestyles: we take care of our kids, work hard, try to eat right, and have very similar workout habits. So… why does only one of us have a responsible relationship with money, while the other not-so-much?
Through research recently conducted here at TDL about the factors impacting credit attitudes, we learned that personality traits have a significant influence on our debt repayment behaviors. By understanding these traits, we can predict attitudes toward money and create targeted interventions that promote responsible borrowing practices.
References
- Fiske, D. W. (1949). Consistency of the factorial structures of personality ratings from different sources. The Journal of Abnormal and Social Psychology, 44(3), 329–344
- Ottaviani, Cristina & Vandone, Daniela. (2011). Impulsivity and Household Indebtedness: Evidence from Real Life. Journal of Economic Psychology - J ECON PSYCH. 32. 754-761. 10.1016/j.joep.2011.05.002.
- Roberts BW, Jackson JJ, Fayard JV, Edmonds G, Meints J. Conscientiousness. In: Leary M, Hoyle R, editors. Handbook of individual differences in social behavior. New York, NY: Guilford; 2009. pp. 369–381.
- Widiger TA. In: MR Leary, RH Hoyle (eds). Handbook of individual differences in social behavior. New York: Guilford, 2009: 129-46.
- Nyhus, E. K., & Webley, P. (2001). The role of personality in household saving and borrowing behavior. European Journal of Personality, 15(S1), S85-S103.
- Brown, S., & Taylor, K. (2014). Household finances and the 'Big Five' personality traits. Journal of Economic Psychology, 45, 197-212.
About the Author
Hector Alvarado
Hector Alvarado is a Director at The Decision Lab. He holds a Masters in Applied Statistics from the University of Oxford, an MBA from INSEAD and a Bachelors in Actuarial Science. He is very interested in applying insights and his past experience to generating meaningful impact for vulnerable populations around the globe. Prior to joining The Decision Lab, Hector worked about 5 years as a Private Equity investor in the Infrastructure Sector in LATAM and over 6 years as a Management Consultant with the Boston Consulting Group. Hector has lead large transformation, growth strategy and integration projects in the Pharma, Consumer Goods and Banking Industries both in North and Latin America.
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