The usual explanations for reckless borrowing focus on people’s character, or social norms that promote free spending and instant gratification. But recent research has shown that scarcity by itself is enough to cause this kind of financial self-sabotage.
“When we put people in situations of scarcity in experiments, they get into poverty traps,” said Eldar Shafir, a professor of psychology and public affairs at Princeton. “They borrow at high interest rates that hurt them, in ways they knew to avoid when there was less scarcity.”
The psychological burden of debt not only saps intellectual resources, it also reinforces the reckless behavior, and quickly, Dr. Shafir and other experts said. Millions of Americans have been keeping the lights on through hard times with borrowed money, running a kind of shell game to keep bill collectors away. The average debt for households earning $20,000 a year or less more than doubled to $26,000 between 2001 and 2010, according to the Urban Institute. The averages for households in slightly higher brackets grew by 50 to 90 percent in the same period.
People dig deeper precisely because they long to escape.
Source: biblemoneymatters.com