Student Debt, Attitudes towards Debt, Impulsive Buying, and Financial Management

Abstract

The debt levels of current and ex-psychology students were compared with their attitudes towards debt, tendency towards impulsive buying, and their use of methods to reduce or limit debt. The percentage of students with some debt and their total debt levels increased with the level of university study. Tolerance toward debt followed the same pattern. Impulsive buying was not related to overall debt levels, suggesting that impulsive buying is not a major cause of student debt. Methods that could be used to reduce or limit debt were widely used by those whose debt level was high. In general, there was little indication that student debt could be attributed to financial recklessness. In recent years there has been considerable research into why people get into debt (e.g. Berthoud & Kempson, 1992; Lea, Webley & Levine, 1993; Lea, Webley and Walker, 1995; Livingstone & Lunt, 1992; Tokunaga, 1993. See Lea, in press, for an overview). The topic clearly has both economic and psychological aspects, and, broadly speaking, accounts of why people get into debt tend either to arise from economic theory and stress rational reasons for people to be in debt, or to stress the role of the personal characteristics of the debtor. For example, life-cycle accounts of saving (e.g. Modigliani & Brumberg, 1954) predict that people will save and dissave at different points in their lives and may incur debt at different times. Lea et al. (1993) suggest that some debt at least can be seen as a rational response to conditions of poverty. On the other hand, Livingston and Lunt (1992) found that both debt and problem debt were quite common among people with rather high incomes, suggesting that personal characteristics may also be important. Recently, both in New Zealand (e.g. Ashby, Roberts & Parata, 1996) and overseas (e.g. Davies & Lea, 1995; Lea, Webley, & Bellamy, 1995) there has been considerable interest in student debt. New Zealand tertiary students are currently facing higher costs for their education than previously, and in many instances students go into debt to pay these costs. A number of questions arise from this phenomenon. First, can this tendency be considered as broadly rational in terms of the life-cycle account, perhaps even an investment in one's future, or are indebted students prone to behave in financially irrational ways? Second, one might ask what the long-term effects of so many young people incurring a substantial debt might be. Davies and Lea (1995) found that the more indebted English university students were more tolerant of debt than those who had smaller debts or none at all. Moreover, tolerance of debt increased with increasing time at university and appeared to lag behind increases in debt level. This result suggests that changes in their debt situation may have causally affected their attitude to debt rather than vice versa. In the present study several aspects of student debt were considered. These include the relationship between debt levels and participants' perception of debt from Davies and Lea's (1995) Attitude to Debt Scale. This scale indicates how accepting of, or opposed to, going into debt a person is. We anticipated, following Davies and Lea's results, that as debt levels rose attitude towards debt was likely to become more positive. Davies and Lea did not investigate whether the increased tolerance to debt they found remained after students left university. Thus the present study included a sample of ex-students. Debt levels may also be affected by an individual's personal characteristics and financial management skills. With New Zealand students having the right to borrow money (at least from the government) and with borrowing being relatively easy, there is a concern (e.g., Betts, 1998) that students may be borrowing to fund unnecessary luxuries (such as overseas holidays). As a result, debt levels may partially reflect what could be regarded as reckless, unnecessary spending. …

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