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Culture, Attitudes, and Debt

posted by Bob Lawless

Rather than a post with a lot of (supposed) answers, today I have a post with a lot of questions. My goal is to start a discussion that I hope our insightful readership will take up in the comments.

Lately, I have been thinking a lot about cultural attitudes toward debt. I am not really sure what I mean by "cultural attitudes." The idea is that Bob Lawless, sitting here in Champaign, Illinois, has certain beliefs toward debt--when it is appropriate to use debt, when borrowing is irresponsible, and so forth. These beliefs about debt might differ from someone who had different life experiences because of different socioeconomic circumstances, because of experiences in another country, or because of other differences that broadly travel under the rubric of "culture." There is empirical evidence that, with "culture" defined in this broad way, differences in cultural attitudes toward debt exist.

Do attitudes toward debt result in differences in behavior? Again, I think the evidence suggests that the answer is "yes." Even after controlling for basic economic factors such as income and wealth, attitudes toward debt affect the amount of borrowing when looking at individual behavior. None of this is surprising -- if I am inclined to borrow, I am more likely to do so. The more difficult and (perhaps?) useful question comes in aggregating individual attitudes into a cultural attitude about indebtedness that has explanatory power about behavior. Folk wisdom tells stories about widely held attitudes toward debt affecting borrowing behavior in some locations. For example, some Asian and European countries are sometimes associated with thriftiness and a disinclination toward indebtedness. I am not suggesting these stereotypes are necessarily true, just that they exist.

Institutions, both financial and legal, seem to play a big role in determining how much personal indebtedness exists in a society. When U.S.-style legal and financial institutions arrive in a society, U.S. levels of personal indebtedness are approached even in places where personal indebtedness had previously been rare. Korea and Spain come to mind as examples. Do these experiences suggest that legal and financial institutions play a larger role than cultural attitudes in determining behavior toward indebtedness? Concomitantly, would that mean that there are certain behaviors around indebtedness, such as a tendency to discount the probability of future bad events, that are more or less "hard wired" in the human brain?

What is the extent of research on these topics? Poking around our library, I can quickly find lots of studies looking at differences in actual usage of debt and ability to borrow. I have had less success finding studies looking at attitudinal differences toward indebtedness. Attitudes toward indebtedness might just be be a subset of attitudes toward promise making and promise keeping more generally because indebtedness is just a promise to pay money. My instinct, however, is that a promise to pay money is qualitatively different than most other promises.

Finally, there is an important question for me as a legal scholar. Are there policy payoffs to thinking about cultural attitudes about debt? The answer is probably "yes" at the general level of crafting policy strategies. If cultural attitudes about debt are easy to change or strong determinants of behavior, for example, then regulatory solutions would be most effective in working on shifting those attitudes toward whatever policy solution has been deemed appropriate. If cultural attitudes toward debt are resistant to change or weak determinants of behavior, then regulatory solutions would more effectively focus on the legal and financial institutions.

All of these thoughts are preliminary, and I would be appreciative of any suggestions, correctives or additions the Credit Slips community wants to make.



There is a long, long list of people of immense contribution who couldn't live within their means: Mozart, Joyce, Wilde, Thomas Jefferson. We could judgmentally label their behavior as self-indulgent, self-destructive or pathological, but the fact remains that, without their creative contributions, life would be less worth living.

Here's a link to a very provocative article on this subject written by Michael Lewis in the September issue of Vanity Fair:


Do Greeks need to become more like Germans or vice versa for the E.U. to work financially?

Bob, there could be no debt unless someone with wealth first recognized an opportunity to obligate someone else to them.

When that creditor was honorable and altruistic there were sociological as well as economic benefits.

When the corrupt and greedy became involved, the game changed.

Tranzon Z, thanks for the pointer to the Vanity Fair article. I like the way you framed the question--do the Greeks need to become more like the Germans or vice versa? I wonder whether it is neither, maybe we just need to change institutions (maybe easier said then done).

Judge Roy Bean, another side of this equation is attitudes toward others' borrowing. One of the reasons for Lincoln's genius was that he saw far fewer evil people as opposed to people doing evil things because of the circumstances in which they found themselves. Whence the corruption and greediness?

I believe that you are bringing to the forefront a critical part of the debt debate that has been missing. One that very few critics of consumer lending fail to recognize (either intentionally or unintentionally). This is long overdue and it has been overshadowed by the failure of critics to understand that debt decisions are driven by individuals and their circumstances (as you noted from your own pondering). What can be seen as irrational by one is seen as completely rational by another.

Over the past few years, many have approached the debt debate with this very narrow definition in that it can either be good or bad. Many take the position that all debt is bad. I believe that this objection to debt is mainly driven by an individual’s philosophical bent or in some cases recently, an opportunity to make a buck (The anti-debt gurus who like tent revival preachers are railing against sin {debt} while passing the plate {buy my book}).

But like money, debt is neither good nor bad. It is nothing more than an inanimate object. I think Darren Hardy’s perspective is compelling:

“But money is only a tool. It will take you wherever you wish, but it will not replace you as the driver. It will give you the means for the satisfaction of your desires, but it will not provide you with desire.”

So like money, debt is just a singular vehicle by which someone seeks value. And value, like beauty, is in the eye of the beholder.

Who are we to say that we are better judges about what brings value to another. The eventual outcome of the use of debt is ultimately driven by each individual’s action and circumstance.

Clearly there are some structural issues with some forms of debt and those need to be addressed. These have to do more with the conscious or unconscious aspects of how the debt is used and managed. But that doesn’t determine whether it is good or bad. It is more an issue of appropriateness for the individual’s circumstances and availability of options. And fraud, deceit, and misrepresentation are driven by people (borrowers & lenders), not debt itself.

There is also this romanticized view that in the not too distant past Americans were thrifty and that if they didn’t have the money for a consumer item, they did without. That consumer debt is a relatively new phenomenon. I see this theme run constantly through the anti-debt, anti-lender crowd. Whether they are hoping to “re-write” history to fit their own vision or are truly unaware of the facts, consumer lending has been the platform that built our country’s wealth and prosperity . But that’s another discussion altogether.

So I think you are on the right track about attitudes and beliefs. I am not so sure about it being cultural though. If one thinks about what the Garmen program achieved in Bangladesh, clearly the lack of lending in the past (and form of lending), was not cultural, but its availability. I believe it has more to do with each individual and what they determine is in their best interest and what value it brings to them.

I think we tell ourselves stories and anecdotes that reinforce heuristics about behavior: these heuristics then become embedded in culture, in such a way that telling stories that run in a different or unexpected direction don't get believed, and don't become part of conventional wisdom.

For example, there's "responsible" and "irresponsible" accumulation of debt. It's responsible as a young professional couple to take on a long duration mortgage to purchase a house. It's irresponsible accumulate lots of credit cards and buy fashionable clothes and a big screen TV with these cards.

Note that this judgement bears more heavily on the debtor than the creditor. Permitting consumers to rack up lots of debt on multiple credit cards is not seen as a moral failure on the part of the lenders.

And when large numbers of people get into difficulty simultaneously meeting their mortgage payments, it's much easier for most people to believe that a bunch of deadbeats wanting free houses have gamed the system, rather than looking at failures by the financial system to make prudent loans, or the actions of servicers (fee pyramiding, dual track foreclosure/modification policies).

If someone says "I have a debt that must be repaid," most people in our culture will react positively - this is an honorable, responsible statement. If someone says "I have a debt I should not be required to pay in full," then most people tend to instinctively recoil from the speaker.

I'm not sure that these social or cultural conventions are hard wired, but they do often serve the ends of the financially powerful. See, for example, the response of the financial sector to the suggestion that cramdown be used to alleviate the foreclosure problem in 2008-2009.

One huge cultural factor I have noticed, and I promise, it will generally bear out, though obviously not from individual to individual, is age. Generally speaking, the younger the person, the more likely they are to think lots of debt is fine and dandy. Scary.

Bob responded:

"Judge Roy Bean, another side of this equation is attitudes toward others' borrowing. One of the reasons for Lincoln's genius was that he saw far fewer evil people as opposed to people doing evil things because of the circumstances in which they found themselves. Whence the corruption and greediness?"

The corruption and greed permeated the environment when the more cunning of the perpetrators arranged to have the consequences for wrongdoing removed.

Agreed with all of the above... cept I think there's also an avenue, and one not quite so small, that must be at the least considered. And that is the role of "our society" as it plays towards the accumulation of debt and debt's perception (good or bad) being manipulated by our society and specifically by the advertising industry (just one example).

Sort of like "mind control" for the masses.

I grew up in a very conservative environment but I can really remember the early 80's (pre Savings & Loan Crisis) and of course the run up to 2008's fiasco and I remember all of those advertisements hocking get rich using other people's money courses, and let's not discount the Lender's own advertisements... Countyrwide was famous for theirs.

Through constant bombardment of "get this, get that and use your credit to do it" there was a major influence on us all to change our view on debt. And there were billions (if not trillions) of $ spent on doing just that, changing our perspective.

It's great to believe we are the masters of our own decisions... the whole concept of "guilt" depends entirely on it, but advertising, peer pressure, just plain old circumstances has a lot to do with what we all do everyday.

Whereas I understand we live in a Capitalist world today, our system today and for the past few years seems to be designed to "steer" us all into the direction that we have no real choice but to use credit, and if it's credit or starve... which to many, especially those who took out loans just to be able to say they had a paycheck for a year, then we (society in whole) should also be laying blame to the system in which we have either created or allowed to exist.

A man's gotta eat, a man's gotta feed his kids, a man's gotta provide a roof and warmth in the winter. There's no real choice here except to drop out entirely and die of starvation or freezing to death. If there's no opportunity for him to do so legally (and I'm thinking Wall Streeters and Mortgage Brokers here too...) then there's not much left but to go illegal.

In my own life I have witnessed repeatedly that Circumstance is everything.

18 years ago I owned 15 rental units in 10 properties. 15 years ago, through banking fraud and a legal institution that, at least in this area, only wanted to take my money (screw the Law, they didn't care about it!), I lost them all. Left me living in a 10' X 20' 40 year old infested garden shed and spending my days, weeks and even years going from dumpster to dumpster gathering insulation and building materials. I had no other options. I'd filed a Chapter 7 Bankruptcy, but for the next 23 years the Lender kept my Credit Report ruined by claiming I still owed (and was 12 years behind in payments) on those first 5 houses! That kind of bad credit and you don't get a job. I know, I lived it. And if you think you know, but haven't actually lived it, then I suggest you take a good look in a mirror, you will see a truly ignorant person staring back at you.

When I was buying and rehabbing each of my properties, debt was a good tool.

I made a deal with a bank on refi's that consisted of I buy a rathole, completely by myself I totally rehab the rathole on Credit Cards, FORCING up the equity, rent them out and then refi them to pay off the cards and do it again. I did 5 and refinaced them all at one time the first time with the promise of future refinancings. I did 4 more after the initial 5 I'd already refi'd with them (never 1 day late on a payment) and they wouldn't refi any more (despite their solemn word beforehand).

Debt became very bad for me... but great for the Lender!

So anyway, my point is we're sold on the concept of debt, and it's a very valuable tool for us all. But it's also a long known and well studied tool for the Lenders. They open their coffers... saturate society's and then close their coffers and rake in the cash!

For decades they've gotten away with it by calling it "the business cycle". Actually it's the rip-off cycle.

Go watch the (at Zeitgeist.com) movie Zeitgeist and it's follow up "Addendum" for an explanation better than I can give.

And for justification of the motivations of the Lenders... besides plain ole greed I also suggest Apathy. They just don't care, they want that 40% profit... screw the cost.

I think there's a matter of broader culture at work here in the concentration of wealth, affecting debt in at least two different ways (in no particular order):

First, as alluded to above, we have a sort of paracapitalist system in which the middle and lower class are expected to innovate while the capital is elsewhere. This, in turn, *requires* debt to secure physical or virtual real estate and pass through the necessary stage of operating at a loss. As an example, if I wanted to try to develop the next must-have smartphone game, I would probably need a better computer for compiling code, an IDE for writing it, access to SDKs (I think Apple charges for this), and incidentals. Even if I develop in my spare time, let's call that $3,000 in start-up costs, which no reasonable person could assume Random Posts on Internet Man has just lying around. I'm not saying that requiring an entrepreneur to put something on the line is bad, by the way, but it *is* required.

The other effect of concentration of wealth is that wages are constrained because there is less competition, but prices are not. Government used to provide something of a check on this by providing constant wages which became a draw if private-sector compensation became too miserly, but now many of the largest corporations (e.g., General Electric) own media which unsurprisingly goes after government workers as being too well-paid. This leaves us in a situation where real wages have been – as I recall – constant or declining against inflation for the last 25 or 30 years, but the accoutrements of middle-class life like real estate and cars cost more, and additional "necessities" have been added like Internet access, cable, and cellular phones. Again, there should be no surprise that folks who wanted to remain in the middle class at least apparently financed that lifestyle with debt. It should also be no surprise that that solution was unsustainable. Again, I'm not excusing people who refused to live in smaller accommodations or figure out how to be a one-car family, but when it costs all someone has and more just to tread water, you can't be surprised when negative consequences appear.

That's the culture I see, and one I tend to think constitutes a change from the era when actual progressive taxation kept wealth and power over wages more distributed.

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