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British Journal of Psychology (2001), 92, 423446 Printed in Great Britain


2001 The British Psychological Society

Life-cycle and dispositional routes into

problem debt
Paul Webley*
University of Exeter, UK

Ellen K. Nyhus
CentER for Economic Research, Tilburg and Agder University College, Kristiansand,
The Netherlands
This paper presents analyses of the correlates of debt in a three-wave panel study of
saving and other nancial behaviour. The data used came from a representative sample
of Dutch households. The results conrm the ndings of previous studies on nonrepresentative samples and demonstrate that although economic variables alone predict
debt quite well, psychological factors (especially present orientation, self-control and
attitudes towards debt) improve our ability to predict indebtedness. The results also
suggest that for most individuals being in debt is a short-term problem: chronic debtors
are a small group and are distinguished by having more limited economic and social
resources, being more present-oriented and nding it more difcult to control their
expenditure than temporary debtors. Dynamic analyses suggest, however, that many
of the differences in psychological variables between debtors and non-debtors may be
a consequence of being in debt rather than a cause of it.

In recent years there has been a steady stream of research focusing on the factors
associated with consumer debt. This has partly been driven by a concern with the
growing social problem of debt (e.g. Berthoud & Kempson, 1992; Davies & Lea, 1995;
Ford, 1988; Lunde, 1990; Stradling, 1998; Tokunaga, 1993), partly by a concern with
determining credit risks (e.g. Canner & Luckett, 1991; Sexton, 1977) and partly by a
desire to increase our knowledge of the natural history of debt through an economic
psychological approach to this issue (e.g. Lea, Webley, & Levine, 1993; Lea, Webley,
& Walker, 1995; Livingstone & Lunt, 1992; Vermeulen, Dirven, Kersten, & Euwals,
1992; Walker, 1996).
In a number of western countries there was a noticeable increase in the amount of
personal borrowing in the 1980s and the 1990s. Schor (1998), for example, reports that
in the United States credit card borrowing doubled between 1990 and 1996 and similar,
though not quite so dramatic, increases in borrowing have been reported for the
United Kingdom (Walker, 1997). This increase in borrowing has also been associated
* Requests for reprints should be addressed to Prof Paul Webley, School of Psychology, Washington Singer Laboratories,
University of Exeter, Exeter EX4 4QG, UK (e-mail:


Paul Webley and Ellen K. Nyhus

with a marked increase in debt problems: according to Parker (1988), approximately 2

million people were experiencing such problems in the UK in the late 1980s, with, for
example, 7% of domestic electricity users having difculty in paying their bills. In
Norway, the growth of borrowing and debt problems in the late 1980s and early 1990s
led to a change in the law to enable households to declare bankruptcy. In the Netherlands,
debt problems have not been so severe. Nonetheless, more than 100 000 households had
problematic debt in the late 1980s (Hulshof, 1993).
The academic research that this social problem has inspired has not been atheoretical
but it has not been theoretically driven. It would be fair to characterize it as eclectic
empiricism. As a consequence, we can now paint a reasonable, though incomplete,
picture of the correlates of consumer debt (Lea, 1999). Debt is associated with lower
incomes and larger outgoings (so the prototypic debtor is a young, single parent living
in rented accommodation) and economic variables alone do a reasonable job of predicting who will be in debt. A number of psychological factors are associated with debt
and, in some studies, provide predictive power over and above that given by economic
variables. For example, attitudes towards debt and towards credit have been found to be
relevant by both Livingstone and Lunt (1992) and Lea et al. (1993) (although not by Lea
et al., 1995) and absent-mindedness with money has been found to be associated both
with self-reported tendency to get into debt (Routh & Burgoyne, 1989) and self-reported
actual debt (Routh & Burgoyne, 1990). There is some evidence that external locus-ofcontrol is associated with debt (Dessart & Kuylen, 1986; Livingstone & Lunt, 1992;
Tokunaga, 1993) and rather more that reference groups, particularly comparing ones
consumption with a group with higher income than ones own, are implicated (Lea et al.,
1995; Schor, 1998).
Although the results seem very plausible, it is not clear what the direction of causality
is between these psychological variables and debt. For example, poor money management
techniques were found to be useful independent predictor variables of debt by Lea et al.
(1995). This could be the result of a causal link in one direction (not knowing how to
manage money leads one into debt), the reverse (chronic nancial insecurity inducing
a form of learned helplessness), that money management, if poor, keeps people in debt
or, if good, helps them to get out of it or be artifactual (being in debt leads one to deduce
that one must be bad at managing money). Our natural history of debt is currently a very
static one. This is very important both theoretically and practically; short-term
indebtedness may be explained by rational expectations about future income and is less
likely to be a serious social problem. Long-term or chronic indebtedness probably
requires alternative explanations and certainly is an important social issue. Such little
evidence as there is (Vermeulen et al., 1992) suggests that for most people being in debt
may be a short-term problem, although these results may simply reect the general
improvement in the economy during the period of their study.
There are also major problems with most of the studies mentioned above. First,
consumer debt has been treated as a separate phenomenon and not integrated with the
study of nancial behaviour generally, nor seen in a life-cycle perspective (Lawrance, 1995
is a notable exception to this rule). There has been no use, for example, of the concept of
future expectations, which plays a central role in economic models of household nancial
decision making (e.g. Das & van Soest, 1997), nor has there been much use of those
psychological variables that have been demonstrated to be relevant in the linked area of

Life-cycle and routes into debt


saving, such as time-preferences, which reect a persons impatience for consumption,

and self-control, the willingness to resist temptations (Maital & Maital, 1977, 1991;
Thaler & Shefrin, 1981; Warneryd, 1999).
Second, researchers have generally used methods which provide a snapshot of the
situation, which means that we cannot make clear statements about causality and have
to rely upon recollections to derive a picture of the debtors career. The use of crosssectional data may explain why the ndings with regard to psychological variables
have not been very robust. Cross-sectional data does not allow researchers to distinguish
between the following groups:
(I) The model consumer
Their nancial arrangements may include numerous loans and other forms of credit (e.g.
mortgages, hire-purchase arrangements, study loans) but they repay these loans according
to the agreed schedule and do not get behind in paying bills. They may borrow or take up
credit but do not get into debt. There is an assumption (on both sides) that the repayment
will be within the borrowers means.
(II) The badly organised consumer
As above, but owing to disorganization may occasionally get behind with bills or have
cash-ow problems. The nancial integrity of the household unit is never in doubt,
however. Such an individual may get into debt (dened as an obligation that a borrower
is unable or unwilling to discharge and where settlement has been deferred without the
seller or lenders agreement; Lea, 1999) but it is not problematic.
(III) The temporarily indebted consumer
The temporarily indebted consumer may incur debt where his or her outgoings exceed
income. However, the household is able, through economies or through earning more
income (e.g. overtime), to get back into balance.
(IV) The chronically indebted consumer
Outgoings exceed income for a considerable time. This is not sustainable for ever
(although may be for many years).
(V) The defaulting consumer
When obligations are so huge that there is no prospect of ever settling up people may/
will default. Here an individual simply does not repay a loan or money owedthis could
be formal and legal (declaring personal bankruptcy) or informal and illegal (moving on
without leaving a forwarding address). Illegal default may be used as a strategy by anyone
in groups III and IV.
There are also serious questions about the generalizability of most previous studies.
Many of these are based on mail surveys, which have had extremely low response rates,


Paul Webley and Ellen K. Nyhus

particularly from debtor groups. Tokunaga (1993), for instance, reports a response rate
of only 13% and Lea et al. (1993) of 11% from serious debtors. As Lea et al. (1995) point
out, we cannot draw conclusions about debtors in general, only about those 1015%
who chose to return our questionnaires (1995, p. 699). Low response rates per se are not
a problem; the issue is whether the minority who do respond are representative of the
majority who do not.
It is important to be clear at the outset about the distinction between debt, default,
credit and borrowing. It is possible to have a debt without ever having borrowed money
(as when one is unable to settle a utility bill). Debt is unplanned and unintended and
may be a problem both for the individual and for the unwilling extender of credit (e.g. a
utility company). Being in debt is a stage (for some) en route to default and bankruptcy.
In this study, the authors focus on debt and not borrowing. Their approach is to assume
that indebtedness is multi-determined but that there are at least two distinct and
interesting routes. First, individuals develop a variety of relevant enduring dispositions
and skills in childhood and adolescence, which are fostered by particular parenting styles.
These include an overall time orientation, the ability to control ones own behaviour, and
conscientiousness. Those individuals who are present-oriented will be less likely to defer
gratication and so will prefer to take out loans or sign hire-purchase agreements
rather than save up for larger purchases. This makes them more vulnerable to changes
in economic circumstances. Their lack of self-control also means that they will be more
likely to behave in the present (e.g. eating, smoking, drinking) in ways that will have
deleterious long-term consequences (obesity, lung cancer, liver disease). This can be
characterized as the dispositional route. Second, individuals may get into debt on
rational grounds. If a person experiences what they see as a temporary drop in income or
a temporary increase in expenditure it may well be appropriate to maintain expenditure
at current levels and run up (temporary) debts rather than attempt to match expenditure to income. Maintaining expenditure levels may not only make economic sense
but social sense as well, as it ensures that one preserves ones reputation. This can be styled
the life-cycle route.
There is evidence for both of these routes with regard to economic behaviour generally
(though not for debt in particular). Several authors have highlighted the role of
upbringing in determining the style of adult economic behaviour. Both Fisher (1930)
and Strotz (1956) predicted that the poor would be more likely than the afuent to give
into temptations and fail to delay gratication. The economic psychologists Maital and
Maital (1977) suggest that the children of the poor will copy this behaviour. Those with
less money are likely to be tempted more often (as they have more unfullled needs) and,
at the same time, have not learned how to deal with temptations. Several empirical
studies support this view. Mischel (1961), for example, found in a study of American
Indians and African-Americans, and children in Trinidad and Granada that father absence
is closely associated with childrens preference for immediate rewards. He attributes this
nding to the childrens trust that the promised delayed reward indeed will be forthcoming and argues that the trust is absent or weak in households without fathers. In the
laboratory, children exposed to models that showed preferences for delayed rewards,
changed their delay-of-gratication behaviour in favour of delay reward, while children
who were exposed to a model who showed immediate-reward preferences altered their
behaviour in favour of immediate reward (Bandura & Mischel, 1965). It also appears that

Life-cycle and routes into debt


the ability to delay gratication is stable over time (Mischel, Shoda, & Rodriguez, 1992)
and the evidence presented by Maital and Maital (1977) suggests that time preference
patterns are rmly established (for life) by the time a child reaches adolescence. A more
recent study by Bernheim, Garrett, and Maki (1997) suggests that the teaching of selfcontrolling techniques is important. They studied the effect of consumer education
policies (in particular the effect of household nancial decision-making courses in high
school) on subsequent asset accumulation in adulthood. This study had a quasiexperimental design. Some states never adopted the educational programmes, while
others adopted them at different times, making it possible to compare subsequent saving
across states and over time. Analysing those young enough to have been exposed to the
education, they found that asset accumulation was higher in the states that had adopted the
educational programme. Moreover, Bernheim et al. (1997) found that those whose parents
had encouraged them to save in a bank account when they were children, saved more than
others in their adult life. Similarly, those who characterized their parents as having saved
more than average saved more than others. The effect of the educational programme was
largest for those who characterized their parents saving less than average, indicating a
substitution effect between teaching by parents and teaching in school.
Evidence for the rational life-cycle approach is widely available (for economic
psychological evidence on saving, see Warneryd, 1999; Webley, Burgoyne, Lea, &
Young, 2001). There is, broadly speaking, a hump-shaped prole for asset holdings
over the life-cycle, although young people save rather more than would be expected
on strictly rational grounds and retired people dissave rather less. Nonetheless, in the US
and elsewhere, average saving increases with age until the 50s or 60s and then drops
(Browning & Lusardi, 1996).
In addition to these rather individualistic routes into debt, it is important to bear
in mind the social and normative aspects of debt. In the UK and the USA in the 19th
century (and the early part of the 20th century), indebtedness was strongly disapproved of
throughout society. Living on next weeks pay and being unable to pay in cash implied a
lack of respectability (Johnson, 1985; Tucker, 1991). This shame of debt is still prevalent
in some social groups as is apparent from the work of Lunt and Livingstone (1992), who
report that some of their sample saw credit as a form of debt, and something that was
shameful, to be avoided, and a source of problems.
This study has four main aims. First, to see whether the ndings of recent economic
psychological studies can be replicated on a representative sample of the Dutch
population. Second, to explore the relative contribution of economic and psychological
factors to the explanation of consumer debt. Third, to explore the impact of important
variables not measured in previous studies, especially income expectations, income
uncertainty, time preferences and personality (conscientiousness). Fourth, to study the
dynamic aspects of consumer debt, to see how far debt is a short-term problem, to explore
the direction of causality of psychological variables (e.g. is a less negative attitude to debt
simply a consequence of getting into debt, as Lea (1999) claims), and to examine what
differentiates those who stay in debt (chronically indebted consumers) from those who
get out (temporarily indebted consumers). In order to accomplish these aims the authors
use the data from three waves of the CentERdata panel (which has data on a wide range of
nancial and other behaviour) to try to overcome some of the problems outlined above
and to extend the understanding of the economic psychology of debt.


Paul Webley and Ellen K. Nyhus


Data were collected from a representative sample of the Dutch population (part of the CentER savings survey,
formerly known as the VSB panel). The initial sampling for this panel was carried out using telephone
directories as the sampling frame. About 97% of the Dutch population have a telephone. An Equal
Probability Selection Method (EPSEM) was used for the selection of telephone numbers. This approach often
leads to self-weighting samples. A procedure was used that gave new and unlisted numbers the same chance
of being selected as listed numbers. In order to obtain a sample which was representative with respect to
region and urbanization, a four-step stratied sampling procedure was used. This involved selecting primary
sample areas (communities), secondary sampling units (banks of 100 telephone numbers within the selected
communities), telephone numbers from those banks and nally the households themselves. The specic
sampling procedure meant that all the largest communities in the Netherlands were represented, and about
half of the smaller ones. Potential participants were telephoned, asked for background information and
whether they would be willing to take part in the panel. Those expressing willingness were then interviewed
and introduced to the computer-aided interviewing technique used. Those individuals ultimately agreeing to
participate agreed to complete questionnaires administered by computer in return for the use of a PC (and
modem). This group constituted around 18.5% of those households that were originally telephoned.
Households with older members, one-person households and families without children were less willing to
participate than others, and, in order to correct for this, quotas were assigned for some demographic
characteristics. Note that this sample was not especially recruited for research into nancial behaviour but
participants had to agree to answer questions on a variety of topics on a regular basis. A full description of the
sampling method used in the CentER data-panel is given in Nyhus (1996).1
Panel members were categorized as head of household, spouse, unmarried partner, parent (in law), child
living at home, housemate and other. In the analyses reported here only data from individuals who were the
head of the households, spouse or partner were used. Of these 4147 individuals, 1133 were in the panel for
all three waves (referred to subsequently as stayers), 1086 were in the panel for two of the years and 1928
were in the panel for just one of the years (1994, 1995 and 1996).
Participants consisted of 2156 men (of whom 2040 were heads of households), and 1991 women (of whom
506 were heads of households). Ages ranged from 18 to 91 (mean 46) years. Of the participants, 50% were
employees, 2.8% were self-employed, 1.6% were students and 11% were retired. These gures correspond
reasonably well to those in the Dutch population as a whole, though there is an under-representationof the
over 80s, who comprise 3% of the adult Dutch population (CBS, 1996) but only 1% of this sample and a
slight over-representation of the 6579 age group (11.6% of this sample compared to 10.1% of the adult
Dutch population). There is an apparently more serious under-representationof the unemployed: only 2.4%
of this sample are looking for work, whereas the ofcial unemployment rate in the Netherlands in 1994 was
7.7%. This may be less signicant than it seems, as some of those classied in other occupational groups (e.g.
work as a volunteer1.4%, other3.2%) may also ofcially be unemployed.

Members of the panel completed ve long questionnaires(similar but not identical from one year to the next)
over several weeks each year. These were entitled Health and Income, Accommodation and Mortgages,
Household and Work, Assets and Economic Psychology. The data used in this paper are drawn mostly
from the last (which includes questions on income, income and price expectations, attitudes to saving, time
preferences, time horizons, money management, assets and bequests) but also draws on the assets
questionnaire (for information about arrears and credit arrangements) and the health and income
questionnaire. The selected variables were chosen as they were of theoretical interest, though the way
some of the variables are measured was not ideal or tailored for this study, as the questionnaireswere designed
with other purposes in mind. Full details of all questionnaires can be obtained from CentER. The items
included in the analyses reported here are described below. In most cases the description is brief: more detail
is provided by Webley and Nyhus (1999).

This is available in pdf format from few5/center/pub/vsbpr.htm

Life-cycle and routes into debt


The independent variables

Net income. Respondents supplied information about income in a number of forms. On two separate occasions
they provided information about estimated household net income (dened as the income of all members of
the household after deduction of taxes, taken as the sum over the past 12 months), once using six income
categories, once using 11 categories. Information was missing from the six-category question on between 7%
and 9% of cases each year so missing values were replaced by alternative observations and by imputation.
Change in income. The net household income gures were used to calculate change in income measure (which
was therefore available for changes between 1994 and 1995 and changes between 1995 and 1996). Of the
respondents, 70% reported being in the same income category from year to year. This gave a 5-point scale
from large drop (2 or more income categories), drop (1 category), no change, increase (1 category), large
increase (2 or more income categories).
Self-reported change in income. Respondents had to indicate whether their income had increased, remained
the same or decreased over the past 12 months, and, if it had changed to indicate the percentage change.
The answers to these questions were used to create a 5-category self-reported income change measure for
each year, from substantial increase (more than 11%), increase, no change, decrease, substantial (more
than 11%) decrease, with the vast majority of people (75%80%) reporting no change from one year to the
Reported income change was fairly consistent: almost half of the stayers income stayed the same across
the 3 years and for the majority of those that did experience change it was always in the same direction. Only
5% of this group experienced both an increase and a decrease in the 3-year period. To try to capture these
changes, two additional measures were computed: one being the average absolute percentage change in
income over the 3 years, the other being the mean signed percentage change. An individual experiencing
changes of 1 20%, 1 10% and 2 30% would therefore get a score of 20 for the rst measure and zero on
the second.
Income expectations. Income expectations for the next year and the next 5 years were assessed in the same way:
respondents had to indicate whether their income was expected to increase, remain the same or decrease and,
if they expected a change (whether an increase or decrease) to indicate the percentage change they expected.
The answers to these questions were used to create a 5-category expected income change measure, from
substantial increase (more than 11%), increase, no change, decrease, substantial (more than 11%) decrease.
The measures of 5-year income expectations showed considerable stability from year to year; thus for the
stayers 5-year expectations were averaged before being categorized. The measures of 1-year income
expectations were less stable.
Income uncertainty. Three measures of income uncertainty were included: two simple measures of certainty of
income change over the 1- and 5-year periods (how certain do you feel about this change of income?) with
four categories of response: very certain, rather certain, not very certain, not at all certain) and a detailed
measure of income uncertainty,in which respondentshad to indicate how likely were (on a 7-point scale from
highly unlikely to highly likely), seven possible changes in income in the next 12 months. These were a
rise/fall in income of more than 15%, a rise/fall in income between 10% and 15%, a rise/drop in income
between 5% and 10%, no signicant change in income. A modied version of the procedure used by Das
(1998) was used to derive a measure of income uncertainty:the likelihood ratings were standardized and then
the standard deviations of these likelihood ratings calculated (treating each possible income change as
equivalent). This provides a measure of the spread of peoples ratings. Scores on this uncertainty index
correlated signicantly with the coarser measure of 17 year income uncertainty described above (1994
r 5 .24: 1995 r 5 .25: 1996 r 5 .24). Correlations between the same type of uncertainty measure across
different years were a little higher (for simple uncertainty measure 94/95 r 5 .27; 95/96 r 5 .27; 94/96
r 5 .26: for uncertaintyindex 94/95 r 5 .34; 95/96 5 .42; 94/96 r 5 .34). The six uncertainty items taken
together formed a reasonable scale (a 5 .65) and so an overall uncertainty scale was formed by standardizing
and then summing these items.


Paul Webley and Ellen K. Nyhus

Socio-economic variables. These included age, gender, education, number of children, housing and whether
there was a partner in the household. Respondents indicated their highest level of education using 13
categories, from primary to University education. These were recoded into four categories: high, medium,
low and other education.
Reported housing situation was very stable with only 3%4% of respondents changing housing situation
each year. In view of this stability, the housing situation reported when the participant rst joined the panel
was used in the analyses.
Whether there was a partner in the household was also stable. For example, of the stayers, 97%
consistently had (or had not) a partner over the 3 years. So whether a partner was present when the participant
rst joined the panel was used in the analyses.
Respondents had to report how many children were in the household (to be counted they had to eat and
sleep in the household at least 4 days a week). Two variables were included in the analyses here: rst, the
number of children in the household when the participant rst joined the panel and, second, the change in
the number of children across the years.
Attitude to debt. Previous analyses of the 21 attitude to saving items included in the 1993 and 1994 waves by
Warneryd (1996) have identied ve orthogonal factors. These factors were thrift, no need to save, saving
involvement, shame of debt, and saving habits. In total, they accounted for 47% of the variance. The
attitude to saving items were included in the 1994 and 1996 wave but not in the 1995 wave.
In order to check how robust the reported factor structure was, the authors carried out two independent
factor analyses on the 21 attitude items, using the 1994 data and the 1996 data and using two mutually
exclusive data sets. These analyses provided some conrmation for the factor structure found by Warneryd
and the factor of interest here (the shame of debt) emerged consistently. Its three dening items were In
general it is a good idea to be able to buy a car on instalment, People who buy on instalment are wasters and
It is not a good idea to borrow money to go on holiday. Separate raw score indices for the shame of debt in
1994 and 1996 were constructed based on the relevant three items. These two scales correlated .83 and .87
with the relevant factor score and are used in the subsequent analyses.
Time preferences. These were explored using a number of paired questions (nine on the 1994 questionnaire, 12
on the 1995 questionnaire) in which the time period and size of the delayed reward were varied across three
situations (delayed receipt of money, delayed payment, speeding up receipt). A typical delayed payment item
asked the respondent to imagine that they had to settle a tax bill of D 1000they could opt to pay in full
now or pay extra for the privilege of settling the bill in 3-months time. An example of the wording of just one
of these questions (translated from Dutch) is given here: Question DRL3 (Delayed Receipt of money, Small
amount, Short time period)
Imagine you win a cash prize in a lottery. The prize is worth D 1000 and can be paid out AT ONCE.
Imagine the lottery, which is a nancially trustworthy organization, asks if you are prepared to wait 3
months before you get the prize. Would you agree to that proposal, or would you ask for more money
if you had to wait for 3 months?
(1) I would agree to wait for 3 months without the need to receive extra money for that. So, after 3
months I would receive D 1000.
(2) I would agree to wait for 3 months, but I would want to receive extra money for that. If the
respondent answered (2) they would be asked How much EXTRA money do you want to receive
AT LEAST, in addition to the D 1000
An annual subjective discount rate (in percent) was computed using the answers to each of these questions
by using the formula r 5 ((VF/VP) 2 1) 12/t, where VP is present value of the cash ow, VF is the future
value of the cash ow, t is the time period to be waited (in months) and r denotes the discount rate used in
the decision. In the questions, respondents are given t and either VF or VP, and they are asked to ll in the
missing value necessary to calculate r. Nyhus (1997) pointed out that discount rates calculated from these
different situations do not form a unitary scale and a factor analysis conrmed her nding that there
were distinct delayed payment and speeding-up factors: all delayed payment items loaded on the second
factor with loadings of between .42 and .79 and all speeding-upitems loaded on the rst factor with loadings

Life-cycle and routes into debt


of between .44 and .67, with no cross-loadings of greater than .3. Therefore, following Nyhus (1996) an
annualized discount rate was calculated for each setting and two scales constructed, one using the six delayed
payment items (two from 1994, four from 1995), the other using the eight speeding receipt items. These
scales each had a values of .63.
Self-control. Four indices of self-control were used. First, spending styles, which was measured with a single
7-point item from I like to spend all my money immediately to I want to save as much as possible. The
answers to this question were fairly stable across the waves (94/95 r 5 .45: 95/96 r 5 .48: 94/96 r 5 .50)
and the answers from the three years formed a good scale (a 5 .75). The scores were therefore combined
to derive a single measure of self-characterization of preferred spending style. Second, two items from the
Health and Income questionnaire on height and weight were used to construct a body mass index (weight in
kilograms divided by height in metres squared). The US National Institute of Health considers individuals
with a body mass of 30 or more to be obese. A simple two-fold categorization was therefore used: those with
a BMI of over 30 being classied as obese, and those under 29.99 as normal weight. Note that both height
and weight measures from each correlated very highly across waves (all over .93 for all pairings), as did the
BMI for each year (94/95 r 5 .87: 95/96 r 5 .90: 94/96 r 5 .87). Third, three questions on smoking
and drinking were used. Heavy drinking was reasonably stable (86% of the stayers reported never drinking
heavily, 5.9% reported heavy drinking in one year, 3.8% heavy drinking in two years and 4% heavy
drinking in all three years). A 4-point heavy drinking scale was used based on these categories.
Time horizons. Two questions were asked each year which asked which of the following time horizons is most
(or least) important with regard to planning expenditures and savings?. The answers to these questions were
not very stable across the waves (for most important time horizon94/95 r 5 .31: 95/96 r 5 .31: 94/96
r 5 .26: for least important time horizon94/95 r 5 .25: 95/96 r 5 .25: 94/96 r 5 .19). The answers
within waves were also not particularly consistent: for example 8% of respondents in 1994 specied the same
time period as both the most and the least important time horizon. No attempt was therefore made to
produce an overall scale and the most appropriate time horizon was included in each analysis.
Money management. There were 19 questions on this topic. As well as general questions (e.g. a 5-point item
from I keep very bad track of my expenditure to I keep very good track of my expenditure) these items
asked in some detail about ways in which people control their expenditure (e.g. using separate envelopes or
boxes in which to keep money, only withdrawing a limited amount of money at the beginning of each week
or month), if (and how) they put money aside for special purposes and if they used a bank card to pay in shops.
An attempt was made to construct a money management index but this was not successful, there being no
strong links between many of these items. The answers to the money management items were also not that
stable from one year to the next: for example of the 357 claiming to use a housekeeping book in 1994, over a
third claimed not to be doing so in 1995. Kappa values (k) for money management items ranged from .23 to
.64. The highest k values, as might be expected, were for those items which concerned the most denite and
formal money management techniques (e.g. automatic transfer of money each month to a savings account).
Economic socialization. Three questions focused on respondents experience as a teenager: the rst asked if they
were regularly given money by parents or relatives, the second if they regularly earned money and the third
asked what percentage of their teenage income they spent immediately. The median response for the teenage
income spent immediately question was 60%. The answers to this were reasonably stable across the waves
(94/95 r 5 .55: 95/96 r 5 .56: 94/96 r 5 .52) and the separate answers from the three years formed a good
scale (a 5 .78). Answers were therefore averaged to derive a single measure.
The answers to the money given and money earned questions were not consistent over the years: 63% of
the answers to the given money questions were consistent as were 69% of the answers to the earned money
question. The answers to these questions were handled in an identical way, to produce two, 5-point scales
from denitely didnt (given/worked) to denitely (given/worked).
Health. The Health and Income questionnaire included 13 items on health. Of these, this analysis used a
general characterization of health (5-point scale from excellent to poor), a question on changes in health


Paul Webley and Ellen K. Nyhus

over the past year, and a question on the subjective expectation of life relative to others of your age.
Two summary measures were constructed for use with the stayers: the general characterization measures
were averaged across the three years and the best estimate of an individuals subjective life expectation was
computed based on the average of information supplied.
Conscientiousness. The questionnaires include items from the 16PA (16 personality adjectives; Brandstatter,
1988), a 32-adjective list representing Cattells 16 personality factors. The 16PA has been found to be
sufciently reliable to substitute for the 16PF (Brandstatter, 1992). Form A (16 items) and Form B (also 16
items) were included in the questionnaires distributed to the 1994 wave: Form A was distributed in 1995
and Form B in 1996. Previous analyses (Brandstatter, 1996; Warneryd, 1996) have identied factors labelled
Emotional stability, Extroversion and Conscientiousness.
The procedure followed here was to carry out two separate factor analyses on all 32 items using the 1993/
94 data and the 1995/96 data separately and using two mutually exclusive data sets. These analyses conrmed
that the factor structure found by Warneryd (1996) was extremely robust. Six adjective pairs loaded on the
conscientiousnessfactor (carefreemeticulous; principledhappy-go-lucky;anxiousunconcerned;little selfcontroldisciplined; not easily hurteasily hurt; self-possessedchangeable). Raw score indices for conscientiousness were constructed based on these items. The 12-item raw score scale had an a of .77 and
correlated .91 with the relevant factor score. The two 6-item scales (using either 1993/94 data or 1995/96
data) had a values of .61 and .60 and both correlated .84 with the relevant factor score. Two 3-item scales
were also constructed for those respondents who were only in the 1995 wave and only the 1996 wave. A
single score on conscientiousness for each individual was constructed using the scores from the appropriate
scale: thus conscientiousnessscores for the stayers are based on the 12-item scale (divided by 12) and based on
the second 6-item scale (divided by 6) for those who were in the sample in 1995/96.

The dependent measure of debt

Previous studies have used a variety of measures of debt status. Lea et al. (1993) used ofcial records
(information from a utility company) combined with self-report measures, others have used information
about peoples credit standing (Tokunaga, 1993) but most researchers have replied upon self-report alone,
sometimes upon a single measure.
In order to identify which of six plausible candidate measures of debt should be used in the main analyses
and how information from the chosen measures should be combined into a single index, homogeneity
analysis using HOMALS (Van de Geer, 1993a, b) was carried out. Homogeneity analysis is a form of nonmetric multidimensional scaling and can be seen as a generalization of principal component analysis which
allows for non-interval variates that are non-linearly transformed during the process. Separate HOMALS
analyses were carried out on the following three mutually exclusive groups: (a) participants who were only in
the panel in 1994 and those in the panel for the two years 1994 and 1995, (b) participants who were only
in the panel in 1996 and those who were in the panel for the two years 1995 and 1996, (c) participants who
were only in the panel in 1995 and for all three years (1994/96). HOMALS treats all data as categorical,
which is useful as it allows one to check any assumed ordinal relationships (e.g. that having three or more
credit arrangements is more related to indebtedness than having two credit arrangements).
The variables used were arrears, bank debt, extent of credit, self-reported nancial situation, perceived
credit-worthiness and (for groups b and c) the stated relationship between income and expenditure (data for
this was collected only in 1995 and 1996). For group (a) data from 1994 were used, for group (b), data from
1996 and for group (c) data from 1995. The advantage of this procedure is that if similar solutions are
obtained for three large independent samples we can be condent that the solution is robust and stable.
In each of the initial analyses, the rst dimension had an eigenvalue above .3 (.33, .32, .33) and the
solutions (rotated if this was appropriate) were very similar. The correlations between scores on dimension 1
in 1994, 1995 and 1996 ranged from .79 to .98. The solutions were very stable. For example, when the
category arrears was eliminated from the HOMALS analysis of the 1994 data set, the pattern of scores was
almost identical.
The rst dimension of each solution was readily interpreted as ranging from debt through managing to
saving. The second dimension was in each case uninterpretable. Therefore, category scores on the rst
dimension were used to construct a debt index as described below (note that HOMALS solutions are nested,

Life-cycle and routes into debt


that is, the rst dimension of a two-dimensional solution is the same as the one-dimensional solution). This
index correlates very highly with scores on HOMALS dimension 1 (r 5 .92 for group (a) using the 1994
data set; r 5 .93 for group (b) using the 1996 data set). The reason an index was constructed (rather than
the alternative of simply using individual scores on HOMALS dimension 1 was, rst, that this ensured that
debt scores were comparable across the years and, second, that the meaning of the index is more concrete and
thus more interpretable. The debt index was constructed as follows: in arrears, 3 points; has bank debt, 2
points; poor creditworthiness, 1 point; three or more credit arrangement, 2 points; 2 credit arrangements, 1
point; self-report in debt, 3 points; self-reported managing, 1 point. Scores could therefore range from zero to
a maximum of 16. Those scoring 3 or more were classied as being debtors: people in this group were either
in arrears or self-reported in debt or had a bank debt or three or more credit arrangements and at least one
other indicator of debt or had three indicators of debt. Those scoring 2 were classied as mild debtors and
those scoring 1 or 0 as non-debtors.

Static analyses
Differences between the debt groups. In order to cross-validate the ndings (Bailey, Harding,
& Smith, 1989), the sample was initially split into two halves: one group (N 5 1873)
consisted of those in the 1994 wave only, those in the 1994 and 1995 waves and 489 of
those in all three waves; the second group (N 5 1864) consisted of those in the 1996
wave only, those in the 1995 and 1996 waves, those in the 1994 and 1996 waves and 644
of those in all three waves. Analyses were carried out using 1994 data for the rst group
and 1996 data for the second group. Table 1 lists all the variables on which the debt
groups differed signicantly and describes the nature of the differences. Though there are
a number of differences between the 1994 and 1996 data, the broad pattern of results on
economic and demographic variables is very similar to that found by previous researchers:
debtors have fewer economic resources (lower incomes, less likely to own their own
homes, less likely to have a partner), have greater economic needs (more children) and
tend to be younger. Results for the psychological variables extend our understanding.
Debtors emerge in both halves of the sample as being more present-oriented, they have a
higher discount rate and their time horizon is shorter. Their attitudes to debt are less
unfavourable. The items used as indices of general self-control, although not entirely
consistent across the two halves of the sample, suggest that debtors have less self-control
than non-debtors and the economic socialization items suggest that they had different
childhood experiences (the weakness of these effects is probably due to the unreliability
of these measures). The results for the money management items (presented in Table 2)
are not consistent from one half of the sample to the other, although given the lack of
stability of these items and the lack of association between them, this is perhaps not
surprising. It is clear that debtors make more use of money-control techniquesand that
they denitely use the technique of not going shopping. In order to use the money
management items in the regression analyses a scale was created of the number of those
techniques (with a maximum of four) listed in Table 2 that each individual used. These
scales, when created for all individuals, correlated well from year to year (.42, .39, .43)
and formed an acceptable scale with an a of .73. This scale is used in subsequent analyses.
To test whether these rst-order effects were independent, the data were analysed
using logistic regression, contrasting non-debtors with mild debtors and debtors. A
hierarchical form of logistic regression was used, which explored the effects of a series

Less unfavourable
Preferred to spend immediately
More earned money as teenager
Prefer to spend immediately
More are obese
More and heavier cigarette smokers
More heavy drinkers

Decrease in income
Higher (more optimistic)
More tenants, fewer own houses
Fewer have partners
Higher level
Higher discount rate

Tendency of Debt groups






























Note: The groups have been dichotomized with non-debtors vs. mild debtors & debtors and x2 or Mann-Whitney U tests used as appropriate.

Net income
Self-reported income change
Five year income expectations
Number of children
Presence of partner
Time preferences
(delayed payment)
Time horizon
Attitudes towards debt
Economic socialization (1)
Economic socialization (2)
Self-control (1)
Self-control (2)
Self-control (3)
Self-control (4)
Subjective life expectancy


1994 data












1996 data






Table 1. Summary of rst order differences between the debt groups. Only differences that are signicant at the .05 level in at least one sample
are shown

Paul Webley and Ellen K. Nyhus

Life-cycle and routes into debt


Table 2. Summary of rst-order differences between the debt groups for money management
items. Only differences that are signicant at the .05 level in at least one sample are shown
1994 data

Tendency of Debt groups

1996 data


Use any of rst list of money

control techniques

More use of techniques


1864 .01

Housekeeping book

More likely to use one


1864 .05

Credit cards

Less likely to have them


1864 .001

Ensure have limited amount

of money on person

More likely to use this



1864 .001

Use any of second list of

money control techniques

More use of techniques

Dont go shopping

Use technique more


1864 .001

Other ways

Use (unspecied) techniques


4.88 1873 .05

Put money aside for special

purposes in envelopes and
jam jars

Do this more often



1873 .05


1873 .001

1873 .05

of groups of variables in turn. The variables were entered into the analysis in the order:
economic, demographic, psychological. In the last category, antecedent variables were
entered before current ones and internal variables before behavioural ones. Thus, psychological variables were entered in the order: economic socialization, internal variables
(time preferences, attitudes) behavioural variables (self-control, money management).
The rationale behind this procedure was to provide the most conservative test for the
signicance of psychological variables: the simplest explanation for debt is economic
and it is possible that any correlation with other variables just reects mutual associations. Only the variables which had been shown to have a signicant rst-order effect
in both halves of the sample were included in the multivariate analysis. To keep the
model as simple as possible only those variables in a group with signicant individual effects were retained at each stage. This analysis was carried out initially on the
rst half of the sample and the nal model tested on the second half of the sample.
Note that as information on the time preference (delayed payments) measure is only
available for only a third of those in the other half of the sample it is not included in these
The results of these analyses to distinguish debtors from non-debtors are presented in
Table 3. There were independent signicant effects for economic, demographic and
psychological factors. Two kinds of psychological measures are retained in the nal
model, namely attitudes (to debt) and two indices of self-control (preferred spending
style, obesity). These measures are robust and have a signicant independent effect in the
second half of the sample. That the presence of a partner does not is unsurprising (it being
the weakest of the variables in the model) but that age has no effect is certainly a little
As the prior probabilities of a respondent not being a debtor are so high, the percentage

Paul Webley and Ellen K. Nyhus


Table 3. Logistic regression model for predicting debt vs. non-debt from the nal set of variables
on 1994 and 1996 data
1994 data
Independent variable
Net income
Number of children
Partner present
Attitude to debt
Use of money management techniques
Prefer to spend immediately
Model x2 : for 1994 data x2 5
correctly classied.

2 44.11
2 .42

2 .35
2 .17
2 .26

1996 data




2 8.36
2 .44


135.38, 85.67% cases correctly classied: for 1996 data, model x2 5

2 .16
2 .25
2 .32

140.42, 85.23% cases

of cases correctly classied do not give an accurate impression of the power of the model.
A sample of non-debtors of comparable size to the number of debtors was taken and
the regression analyses rerun with this sample and all the debtors. The seven predictor
variables in the nal set correctly predict 67.3% of cases (although attitude to debt then
has no signicant independent effect and the signicance of partner and obesity slip to
< .1). This gure of 67.3% compares favourably to the 56% correctly classied reported
by Lea et al. (1995); since their strategy of oversampling debtors gave roughly equal
samples of serious debtors, mild debtors and non-debtors this is a fair comparison.
Differences between the debt groups using only the stayers. A further static analysis was carried
out on the stayers only. The reason for this is two-fold: both the independent and
dependent measures for this group are more reliable than for each wave alone (and
therefore are more sensitive) and some variables are available for only this group. This
analysis uses individuals who were included in the static analyses above and is not
therefore independent of it. Table 4 lists all of the signicant differences. Broadly
speaking, this conrms the results of the earlier analysis with some interesting additions. As in the earlier analysis, debtors have fewer economic resources but with this
subsample it is also clear that these are more likely to vary and thus debtors are more
uncertain about their incomes. Debtors expect their incomes to increase more over the
next 5 years but this is not a matter of being generally optimistic, since their mean
relative life expectancy is lower than that of non-debtors. There are fewer signicant
differences between the mild debtors and the debtors but the latters income varies more,
they are younger, prefer to spend their money immediately and nd it more difcult to
control their expenditure. This analysis was repeated on the heads of household only
and almost identical results were found. To examine whether these effects were independent, the data were analysed using hierarchical logistic regression with a nested
dichotomies approach (rst contrasting never-debtors with those who had been mild
debtors or worse at least once and second contrasting those who had been mild debtors
at least once with those who had been debtors at least once). This approach was preferred

Life-cycle and routes into debt


to the use of the obvious alternative (ordered logit) as the latter assumes that variables
discriminate in the same way across all groups (Fox, 1997).
The results of these analyses to distinguish mild debtors and debtors from neverdebtors are presented in Table 5. There were independent signicant effects for economic,
demographic, psychological and behavioural factors. There is considerable overlap with
the results presented in Table 3; in this analysis age is not a signicant factor and there
are three additional variables in the nal model, one economic (variation in income)
and two psychological (time preferences and difculty in controlling spending), although
the latter effectively replaces preferences to spend immediately. Again, as the prior
probabilities of a respondent never having been a debtor are high, a sample of neverdebtors of comparable size to the number of debtors was taken and the regression analyses
rerun. The nine predictor variables in the nal set correctly predict 64.65% of cases
(although mean income and partner present then have no signicant independent effect).
Regression analyses to distinguish mild debtors from debtors revealed that only
difculty in controlling expenditure had an independent effect. A model with only this
variable had a x2 of 11.75 ( p < .001) and classied 61.32% of cases.
Dynamic analyses
Changes in debt status. The main advantage of using panel data is that one can differentiate
debtors of different types, and in particular between those for whom debt is a temporary
problem and those for whom it is a chronic problem. Of the 1650 who were in the panel
both in 1994 and 1995, 120 (7.3%) were in debt in 1994. Of these, 56 (46%) were still
in debt in 1995, while 15 (12.5%) were mild debtors in 1995. To look at this another
way, of the 107 who were in debt in 1995, 49 had been debtors and 49 non-debtors in
1994. Of the 1635 who were in the panel in both 1995 and 1996, 110 (6.7%) were in
debt in 1996. Of these, 51 (46%) were still in debt in 1996, while 18 (16.4%) were mild
debtors in 1996. Of the 119 who were in debt in 1995, 51 had been debtors and 50 nondebtors in the previous year. In each pairing of years, only a minority (say 15%20%) of
those categorized as mild debtors were categorized as debtors 1 year on. Data from the
stayers provides further information. Almost half (46.8%) of this group never had any
indication of debt across the three years; they had no loans, were not in the red in the bank
at the end of the year nor did they have any of the other indices of debt. One in eight
(11.9%) were in debt at least once, but being in debt once (rather than frequently) is more
common (7.6% vs. 4.3%). If we look solely at those who were in debt in 1994 and see
what happens to them over the next two years, we get a slightly different impression. Of
the 66 who were in debt in 1994, 18 stayed in debt for the next two years, 20 were in debt
in either 1995 or 1996 and 28 have got out and stayed out of debt. These numbers are
rather small to do effective analyses, but some attempt is made here by contrasting those
who were in debt in 1994 but out of debt in 1995 and 1996 (temporary debtors) with
those who were in debt in 1994 and still in debt in 1995 or 1996 or both (chronic
debtors). Chronic debtors had lower net incomes (U 5 299, N 5 60, p < .05), fewer had
partners (x2 5 7.74, N 5 60, p < .01), had a higher discount rate (U 5 266, N 5 55,
p < .05), had a shorter time horizon in 1996 (U 5 242, N 5 60, p < .01), preferred
to spend money immediately (U 5 296, N 5 59, p < .05) and found it more difcult to


More uncertain
Fewer have partners
Higher level
Higher discount rate
Less unfavourable
Less conscientious
More report earning money as teenager
Prefer to spend immediately
More are obese
Use more techniques
Find it more difcult


More variation in income
Higher (more optimistic)

Tendency of Debt groups



























Comparison 2: mild
debtors vs. debtors

Note: (1) The overall signicance is derived either from a Kruskal-Wallis test (where Mann-Whitney U are reported in the comparison columns) or a x2 (where chi-squares are
reported in the comparison columns). The comparisons are planned, and are therefore carried out even when there are no signicant differences between the groups overall.
(2) Figures reported are for 1996 for time horizon and attitude to debt; gures for 1994 are very similar.

Mean net income

Mean absolute % change in income
Averaged 5 year income
Mean income uncertainty
Number of children
Presence of partner
Time preferences (delayed payment)
Time horizon
Attitudes towards debt
Economic socialization (2)
Self-control (1)
Self-control (2)
Money management
Control of expenditure
Mean subjective life expectancy


Comparison 1: never-debtors vs.

mild debtors and debtors

Table 4. Summary of rst-order differences between the three groups, never-debtors, at least once a mild debtor, at least once a debtor. Only
differences that are signicant at the .05 level are shown

Paul Webley and Ellen K. Nyhus

Life-cycle and routes into debt


Table 5. Logistic regression model for predicting never-debtors vs. at least once a mild debtors or
worse from the nal set of variables

Model x2 5

Independent variable


Net income
Variation in income
Number of children
Partner present
Time preferences
Attitude to debt
Use of money management techniques
Find it difcult to control spending

2 .69
2 .25

2 .63
2 .23


130.16, 80.1% cases correctly classied.

control expenditure (U 5 306, N 5 60, p < .05). The most striking nding here is the
big difference in the number of each group who have partners, which largely explains
the difference in net household income: 21 of the 27 temporary debtors had partners
in 1994 (and one of the 6 who did not gained a partner in 1995) whereas 19 of the 33
chronic debtors had no partner present in 1994 or subsequently). That time horizon in
1996 differs between the groups (but time horizon in 1994 does not) suggests that this
difference is a consequence of chronic indebtedness rather than a cause. The time
preference measure, on the other hand, is based on data in the 1994 and 1995
questionnaires, and so is more likely to be partly responsible for the chronic debt. In
summary, these results suggest that chronic debtors have limited economic and social
resources (the absence of a partner reduces more than just household income), are more
present-oriented than temporary debtors and nd it more difcult to control their
Cross-lagged analyses. Cross-lagged correlational analysis takes a simple and supercially straightforward approach to the issue of primacy of cause: if the correlation
between variable A at time 1 and variable B at time 2 is signicantly greater than that
between variable B at time 1 and variable A at time 2, this provides some evidence that
A causes B (rather than the reverse). However, this approach makes a number of rather
restrictive assumptions (Rogosa, 1980) and it is certainly not an ideal approach (Cook &
Campbell, 1979). The most important of the assumptions are that the synchronous
correlations between the variables are similar, the internal reliability of the measures are
the same and the auto-correlations do not differ for the two variables. The rst and third
of these assumptions are met for the two variables debt group and attitudes to debtthe
respective reliabilities are unknown. Table 6 provides some evidence that being in debt
modies ones attitudes towards debt (the cross-lagged correlations are signicantly
different) and gives details for four more psychological variables. In each case the
correlation between debt group in 1994 and the psychological variable in 1996 is greater
than the correlation between the psychological variable in 1994 and debt group in 1996.
This suggests that shifts in time horizon, in preferred spending style, in the use of money

Paul Webley and Ellen K. Nyhus


management techniques, and in obesity, may be more likely to be a result of being in debt
rather than a cause of it.
Table 6. Correlations between debt group and psychological variables in 1994 and 1996
1994 Attitude
Time horizon
Spending style


Debt group
1996 Attitude
Time horizon
Spending style
Money manage



time h







m-m obese

debt att

time h

.10 .16










All correlations are Kendalls t (signs are omitted). Synchronous correlations are in the top (1994) and bottom (1996)
triangular sections. Dychronous correlations are in the square. Bold gures give auto-correlations; the cross-lagged
correlations between debt group in 1994 and psychological variables in 1996 are italicized and the cross-lagged
correlations between psychological variables in 1994 and debt group in 1996 are underlined. Only correlations
signicantly different from zero are displayed.
Note that though Kendalls t is the most appropriate it is not possible to calculate the signicance of the difference between
correlations so for attitude and debt group the difference between Pearsons correlations is tested using Steigers (1980)
Z2 . The synchronous Pearsons correlations were .13 and .12, the dychronous correlations .44 and .46 and the cross-lagged
correlations .08 and .16.

The prediction of debt from past variables. As with the earlier static analyses, the sample was
split into two halves in order to cross-validate the ndings. One group (N 5 1088)
consisted of those in the 1994 and 1995 waves only and roughly half of those in all three
waves; the second group (N 5 1087) consisted of those in the 1995 and 1996 waves only
and the other half of those in all three waves. Analyses were carried out using data on
1995 debt and 1994 independent data for the rst group and data on 1996 debt and 1995
independent data for the second group. The procedure followed was to develop the best
logistic regression model for predicting the following years debt status using an iterative
procedure, using forward- and backward-step regression with all possible independent
variables in a wide range of combinations (this approximates to a best subsets regression).
The same four signicant predictive variables emerged consistently (see Table 7).
Unsurprisingly, the best single predictor of debt in 1995 was debt status in 1994: in
addition net household income in 1994, preferred spending style in 1994 and use of more
money management techniques in 1994 helped to predict 1995 debt status correctly in
88% of cases. The same model, when applied to the prediction of 1996 debt status was
successful in predicting 87% of cases but the use of money management techniques made
no signicant independent contribution to this prediction.
Debt status and differential panel attrition. Hagenaars (1990) points out that there is
usually little reason to expect that non-response occurs completely at random. People will

Life-cycle and routes into debt


Table 7. Logistic regression model for predicting debt vs. non-debt from the previous years
Debt in 1995

Debt in 1996

Independent variable





Debt in previous year
Net income
Use of money management techniques
Prefer to spend immediately

2 .65


2 .95


2 .35
2 .21

Model x2 : for 1995 data chi-square 5 148.8, 88.6% cases correctly classied. N 5
x2 5 156.2, 87.21% cases correctly classied, N 5 1048.

2 .20
2 .18

1025: for 1996 data, model

have denite reasons and motives not to participate and these . . . may be directly related
to the variables under study (p. 249). Given that the CentER data set is concerned with a
wide range of nancial matters we might expect to nd differential rates of attrition
between those of different debt status, although it is worth noting that participants were
not recruited specically to give information about nancial matters and regularly
completed questionnaires on a wide range of subjects.
There are differences between those who were in the panel for 1 year only (whether
1994, 1995 or 1996) and those who have stayed in the panel for all three years. A
signicantly higher proportion of those who stayed in the panel for 1 year only were in
debt. For example, of those who were in the panel only in 1994, 7.4% were in debt,
whereas 5.8% of the stayers were in debt in 1994 (x2 5 5.8, p < .05) and of those who
were in the panel only in 1995, 8.8% were in debt (compared to a debt gure in 1995
of 5.3% for the stayers: x2 5 10.2, p < .05). Given this differential attrition rate, one
must be cautious in extrapolating the results of analyses on the stayers to the general
The rst conclusion to be drawn from the analyses reported in this paper is that the
picture of debt and debtors painted by previous researchers appears to be conrmed.
Although the measure of debt used here is not exactly comparable to those used in
previous studies (where the debt samples have consisted of people seeking assistance with
debt problems, people known to be in arrears with utility bills or people who have led
for bankruptcy) and the structural constraints on credit are different in the Netherlands
from other countries, the results obtained are strikingly similar. As in all previous
studies of debt, economic factors turn out to be very important and can do quite a good
job of predicting who is in debt and who remains in debt. But more important is that
psychological variables are implicated: both those variables that have been examined here
for the rst time and those that have demonstrated predictive power in previous studies
(such as attitudes) play an important role, despite the use of rather different measurement
and data collection methods.
The most interesting of the new psychological variables are time preferences and selfcontrol. It was expected that those with a present orientation and a lack of self-control


Paul Webley and Ellen K. Nyhus

would be more likely both to get into debt and to stay in debt. Our results provide
some evidence that this may be the case. The measures of present orientation (time preferences and time horizon) are consistently associated with debt in both the 1994 and
1996 data, distinguish never-debtors (type I) from others and differ between chronic
(type IV) and temporary (type III) debtors. Similarly, all of the measures of self-control
(spending, obesity, smoking, drinking) were associated with debt in some of the analyses
and two of them (spending and obesity) were robustly associated with debt status in a
particular year and distinguished never-debtors (type I) from the others. Preference for
spending immediately also differed between chronic (type III) and temporary (type IV)
debtors. However, while spending immediately, cigarette smoking and obesity may
indicate lack of self-control they may also be a consequence, rather than a cause, of debt.
Obesity, for example, may be a result of comfort eating, and smoking may reduce the
stress of being in a poor nancial state. It is also possible that, for some people, getting
into debt may decrease both their desire and their ability to control spending (the kind of
reasoning typied by the English proverb in for a penny, in for a pound). So while our
results are consistent with the dispositional route into debt described in the introduction,
they do not provide unambiguous evidence for it.
Those variables grouped under the label of money management are also interesting.
Our initial attempt to construct an index of money management items was unsuccessful,
perhaps not surprisingly as these techniques represent, to some extent, alternative
solutions to the problem of monitoring and controlling ones expenditure. If the
technique of setting up a monthly automatic transfer of money to a savings account
works, there is no need to use other methods. Nonetheless, the use of certain money
management techniques (using a housekeeping book, having a limited amount of money
on ones person, avoiding shopping) does seem to be associated with debt. These techniques share the characteristic of being low tech and perhaps, of not being medium and
long-term commitment techniques (such as overpaying tax and withdrawing a xed
amount of money each month). The use of more of these techniques consistently
differentiated debtors from non-debtors, and never-debtors from the others. But it
would be reasonable to conclude simply that the use of money management techniques
increases when they are necessary.
Most of the psychological variables that previous researchers report as being correlated
with debt are also associated with debt in this sample, even if they did not contribute
to the ability to predict debt group. Attitudes, found to be relevant by Livingstone
and Lunt (1992) and Lea et al. (1993), though not by Lea et al. (1995), are associated with
debt in both the 1994 and 1996 data and are predictive of never being in debt. The
problem here is that the evidence also suggests that this association may be an adaptive
preference: getting into debt (as Davies & Lea, 1995, report) makes debt seem not quite
so bad. It was expected that conscientiousness would be strongly associated with debt
but this proved not to be the case. Being conscientious was associated with never having
been in debt but generally the relationship between conscientiousness and debt status
was not strong. This is somewhat surprising but we suspect it is a result of the relative
unreliability of the measure of conscientiousness employed. Only for those individuals
where full data were available (from 1994 and 1996) was it possible to construct a reliable
conscientiousness scale and it is with this group that the relationship was found.
The nal kind of variables worth noting are those concerned with expectations (e.g. of

Life-cycle and routes into debt


future income). Expectations play an important role in current economic models of

household consumer behaviour and we now have some evidence of their signicance to
indebtedness. The rst thing to note is the robust nding that debtors are more likely
to expect their incomes to increase in the medium-term but not the short-term. This is
entirely consistent with a life-cycle approach to borrowing and consequently debt. It also
appears that debtors experience more variation in their incomes and are less certain of
their future income. This seems very reasonable though having an uncertain future
income might be expected to lead to attempted saving (for a buffer) rather than debt. It
is difcult to say more based on the evidence available: the measures of income expectations are fairly crude (most individuals report expecting no change in their income)
and the income uncertainty measures are also far from ideal, as Das (1998) has
Although the introduction to this paper stressed the disadvantages of mail surveys
and the relative advantages of using a representative panel, the latter is not without its
problems. The initial quota selection of households and the relatively high non-response
rate does introduce unknown variation into the data and means that the claim that the
panel is truly representative must be treated with caution. It could be the case that while
the proportions in different socio-economic categories correspond to the Dutch population, the individuals included in those categories are atypical. It is possible, for instance,
that many elderly people would be put off by the thought of answering questions on a
computer and so the older people who do participate might be more exible, in better
health, and so on, than is usual for their age group. However, Ritzema and Homan (1991)
point out that the procedure used to recruit the members of the panel minimizes the
drop-out rate that can be attributed to the use of computers, which are only mentioned in
the last part of the initial recruitment interview. Only 5.1% of those who did not
participate took this decision because a computer had to be used. Ritzema and Homan
(1991) also comment that on a very wide variety of socio-economic characteristics
the panel is comparable to the Dutch norm and so conclude that it is legitimate to see the
panel as representative of the population.
While this may be so, the non-response rate for particular questions and the
differential attrition rate are all potential threats to validity. Both may distort the results
somewhat and, given that debt is a private and sensitive issue, it is likely that the
numbers admitting debts are less than those who actually have debts. Nonetheless, one
does not have to be too apologetic about the use of self-report measures of debt. Work
by Lea, Webley, and Bellamy (1995) suggests that students reports on their bank
balances are fairly accurate (in that the aggregate estimates correspond very well with
those based on bank records) and Lea et al. (1993) report that 72% of a group that
according to a Utility companys records had debts admitted to these and many of
the remainder may well have moved out of debt between categorization by the company
and the administration of the questionnaire.
This paper argues that both economic and psychological factors are needed to explain
consumer debt. Economic factors and structural constraints obviously have a very large
part to play in indebtedness: the large differences in the proportion of those in debt in
The Netherlands and the UK, for example can in the main be explained by reference
to differences in the standard of living, the deregulation of the credit market in the UK
and better social security arrangements in Holland. But psychological variables also


Paul Webley and Ellen K. Nyhus

matter: some people in dire nancial circumstances keep out of debt and others with good
nancial positions get into serious difculties. So it is crucial that future studies look
simultaneously at both economic and psychological factors. We also believe that we have
demonstrated the value of investigating debt longitudinally, which has enabled us to
differentiate between two of the consumer groups mentioned in the introduction
(temporary and chronic debtors) and provided some indication of likely causal factors.
The existing literature gives us plenty of information about what variables are associated with debt but very little about the direction of causality. What is needed now is
some integrated theoretical development; we do not need yet more elaborate contingent
empirical generalizations nor more elegant economic models but a model that combines
the rigour and simplicity of the best economic models with the insights of psychologists.
Such an integrated theory is very hard to construct, but it may be that the kind of
economic psychological model of tax paying proposed by Cullis and Lewis (1997), which
takes social conventions into account, is process oriented but still deductive, will provide
the basis for a similar model of debt behaviour.
The work for this study was carried out while the rst author was a research visitor and the second author
a research fellow at CentER (the Center for Economic Research, University of Tilburg). The authors are very
grateful for their hospitality and the use of their facilities. They would also like to thank Henk Elffers for his
helpful advice on the homogeneity analysis, Harry Garst for providing useful SPSS macros, Karl-Erik
Warneryd for his very valuable comments on an earlier draft, Michael Wood for his perceptive feedback on
how to describe the complicated sampling procedure and the anonymous referees for their helpful comments.
Financial support from the TMR grant project: Savings and Pensions (ERB 4061 PL 95-0274) and a
European Community Marie Curie Fellowship (ERB FMBICT 961080) is gratefully acknowledged.

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Received 21 May 1999; revised version received 28 April 2000