Over-indebtedness and the interplay of factual and mental money management: An interview study

Abstract

Previous research has shown that money management contributes to over-indebtedness. This article sheds new light on this relation by looking at factual money management and its mental underpinnings, mental accounting. In a conceptual model we propose that fuzzy factual and mental money management practices aggravated by lack of congruency between factual and mental structures play an important role in over-indebtedness. Twenty-five in-depth interviews deliver preliminary support for this proposition. Successful financial control seems to build on efficient and inter-coordinated factual and mental money management. This reduces the willpower necessary for controlling financial behavior and helps to prevent and fight over-indebtedness.

Keywords:

• debt
• money management
• mental accounting
• self-control

Acknowledgements

This research was financially supported by the Georg-Winckler-Stipend awarded to Bernadette Kamleitner. The authors thank Schuldnerberatung Fonds Soziales Wien for valuable insights and support in recruiting participants. We are grateful to Barbara Kastlunger, the editor and two anonymous reviewers for valuable comments on the paper.

Notes

1. The causality of the relationship between poor health and debt has yet to be determined (cf. Webley & Nyhus, 2001).

2. To allow simultaneous comparisons between participants before and after reports and the control group, a MANOVA was run. Differences between groups were established through Dunnet-T3 tests which controlled for heterogeneity in variances. Pair-wise group comparisons in t-tests yield comparable results.

3. Over-indebted people tend to lose access to credit cards. Remarks of several participants support this.

4. The more funds are available, the less it is necessary to have multiple budgets. As a result, the mental accounting structure is supposed to be more elaborate, including more budgets, for persons with low income than for persons with high income (Heath & Soll, 1996).

5. Discussions with several debt advisors indicate that people not facing actual problem debt very rarely make use of the service.

6. We based the estimate on the annual net income and the current debt. The annual net income was approximated by multiplying the monthly net income by 14, which is the amount of salaries typically paid in Austria. Due to different forms of employment, the actual income is likely lower and the provided ratio likely underestimates the degree of indebtedness faced by participants.

7. No such relation was found by Lea et al. (1995).