Monday, January 13, 2014

Encourage Responsible Debt at Life Changes

Taking on debt can enhance not only creditworthiness when requesting a loan, but also creditworthiness as a person, according to researchers at New Zealand’s University of Otago. During life changes—such as leaving home to go out on one’s own—consumers take on debt as a way to establish an identity. Part of this occurs because debt lets the consumer buy material possessions, and what we own becomes both a cause and an effect of how we view ourselves as well as how others view us. But it’s also true that just taking on the debt, regardless of what it’s for, bestows self-esteem.
     “Getting into debt is the American way” was the prevailing opinion among a group of white, middle-class Americans selected and interviewed in depth by consumer researchers from Oregon State University and France’s École des Hautes Études Commerciales du Nord. By “the American way,” the respondents initially explained that buying on credit was extremely common. The one white, middle-class American who said she avoided credit went on to add that her un-American habits resulted in her being unable to get a mobile phone and experiencing endless troubles while traveling without a credit card.
     Yet there was more to it: Taking on debt is patriotic, some said. It’s necessary for Americans to do it in order to keep the economy rolling.
     On the other hand, we’d like our target consumers to be in good financial health. Threats to that health are more common during periods of life changes, such as starting college, college graduation, getting married or divorced, having a first child, changing careers, and locating in a new country or culture.
     After the consumers’ changes, let them live long and prosper. And spend their years and money shopping with us. Let them go with the flow.
     Or more precisely, the flow state. Psychologists talk of a “flow state” in which a person who makes a consumer decision then becomes more likely to make another similar decision and then another.
     Researchers at Northwestern University analyzed flow states in people trying to erase debt. The researchers found that a good predictor of the consumer’s success was the number of credit accounts closed toward the start of the debt elimination program. The dollar balance of the credit accounts closed at the start was not a good predictor of success. It was the momentum of closing accounts which made a difference.

Click below for more: 
Lend a Friendly Ear to Loan Debtors 
Pledge Allegiance to Patriotic Consumers 
Educate During Life Changes 
Flow Consumers Into Good Financial Habits 
Check for Unintended Consequences

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