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Why we lie about money and debt

Many Americans live in a constant state of financial ignorance or denial, according to the Bankrate Financial Literacy Survey.

Seventy-five percent of respondents, for example, claim they don't make any major purchases on credit cards unless they can pay them off immediately. But 74 percent say they are concerned about being able to pay their credit card bills every month.

And if people's claims about themselves are deceptive, their take on their fellow consumers is beyond cynical.

Fifty-eight percent of respondents claimed to pay off their credit cards in full every month -- a marked contrast to studies that show that number closer to 40 percent. But remarkably, only 3 percent of respondents believe that most other people pay off their cards in full.

So does this survey prove that Americans are unconscionable braggarts who view their fellow Americans in the harshest possible light?

Not exactly, because what the survey actually illustrates is the bizarre and conflicted attitude Americans have toward money.

"In the United States, talking about money is harder than talking about sex," says Marian Friestad, professor of marketing at the Lundquist College of Business at the University of Oregon and past president and fellow of the Society for Consumer Psychology.

Friestad says that the survey answers indicate the deep connection between our financial lives and our view of ourselves.

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"Our relationship to money is complex, and often a love-hate relationship," says Friestad. "Money is valued certainly for its own sake, as it can help us live a more comfortable life. But it's also measured for its intrinsic value to us as people."

As such, people often disconnect themselves from how they spend their money, according to Jim Tehan, spokesman for Myvesta, a nonprofit financial health center that has categorized one-quarter of the consumer population as "money abusers."

"We've found that money problems aren't about money, but other life issues," says Tehan. "When people have debt problems, it's not that they have credit cards or a mortgage. They are spending money unconsciously, using money not as a tool, but to escape problems."

Tehan uses the adage "whoever dies with the most toys wins" to describe the national mood regarding money, and why it's difficult for many to view money logically instead of emotionally.

"The average American's relationship to money is based on wants, not needs," says Tehan. "As a society we're called 'consumers.' Last year the president told us to go shop as our patriotic duty. When we hear this, it's all about stuff -- not what you make, but what you do with it."

Professor Russell Belk, a professor at the University of Utah, says studies have confirmed that our relationship with money is not practical, but emotional.

"The things we spend money on are emotionally charged," says Belk. "It's a good thing to care for family and to buy them nice things, and it's a way to get affection and appreciation, a sign of love. We spend money thinking we're doing something good, but might be doing something bad to the long-term health of our families by doing that."

With money accorded such a prominent place in the national self-image, it's not surprising that people who experience problems in that area, or just don't have an exact grasp on their situation, may not be upfront about it.

"People try to hide the fact they are having these troubles," says Hal Edwards, vice president of business development for InCharge Institute, a nonprofit organization specializing in personal finance education and credit counseling.

"There's still a stigma attached to not paying bills or to owing creditors. People won't discuss it with even their closest friends or relatives. They don't feel comfortable saying, 'I have this problem.' And like any problem, you have to admit you have it before you can address it."

These reasons for lying about one's own financial situation also demonstrate why people may perceive the financial health of others to be dire.

"It's a means of self-justification, a way of saying 'I'm normal, you're not,'" says Belk.

But our negative perception of our neighbors is also more complex than just wanting to keep up with -- or beat -- the Joneses. The survey respondents' views of eclipsing their neighbors match other studies claiming that people are likely to perceive themselves as smarter and more in control of their lives, no matter what the topic.

Friestad says that Bankrate's findings jibe with a general psychiatric principle often called the "third-person effect."

"It comes from research on consumer perceptions of how ads and marketing affect people," describes Friestad.

"People say, 'I'm not influenced by ads, but everyone else is.' And everyone says that, which is inconsistent. There is a sense that we make perception errors, that we understand our own situation and tend to think of the rest of the population as having more problems or being more susceptible to mismanaging their finances."

While it is easy to write this off as simple denial, Friestad says it's more than that.

"We understand our own behavior as being very complex and situational," says Friestad. "We can think of different months where we bought something major and either did or didn't pay it off. We have complex memory structure for our own situations. But for other people, we only observe occasional events, or are influenced by general statements in the media."

This leads to another factor in people's perception of their fellow Americans. Media coverage of the economy can influence how people perceive the financial health of others.

"We do have a distorted view of how we do compared to others because of the kind of news that's reported," says Belk. "If you watch TV, for example, you think there's more crime than there is. It's called 'cultivation hypothesis,' which shows that people who watch TV have more of a distortion of the truth. So new immigrants who watch lots of TV think everyone has a swimming pool."

"We don't have a week go by without articles on the growth of debt, foreclosures and delinquencies," says Edwards, "and if you don't recognize that your situation is somewhat severe, then you can't help thinking it's the other guy."

But psychological theories aside, many Americans gave the answers they did simply because they are lousy at managing their finances, and don't understand the trouble they're in.

Myvesta did a study that found that almost one-quarter of Americans don't even look at their credit card statements every month.

"People don't take good control of their finances, so they don't always know what their situation is," says Tehan. "People who have financial problems are often in denial until there's one event that kicks in, when they can't get that next credit card or loan. When they're up against a wall, that's when reality sets in."

Edwards finds that many of the people he counsels can't distinguish financial perception from reality because they simply never learned anything about finance.

"Personal financial knowledge is very sketchy," says Edwards. "It's not really taught anywhere. Some people learn traits like frugality from their parents. But if you don't have it at home, where do you learn it? Not in the schools. Some people don't get the tools and knowledge early on, and if you don't have it, it's hard to pull up."

And on top of that, the rise of ATMs has made money seem like a less concrete, more ethereal entity.

"I imagine there are a lot of people who don't keep close track the way we did when we used checkbooks," says Belk. "With debit cards, it's easier to spend like there's no tomorrow and not worry about it until there's a problem. As we've gone from gold standard to paper money to electronic, it's become more abstract and easier to spend, like when you're in a foreign country spending coins of different shapes and colors."

Bottom line: Americans' complex and sometimes delusional view of their finances is not a problem easily fixed. But one area we can control is financial education. Simply put, the more we teach people about finance at an earlier age, the more likely they are to have a realistic and intelligent view of it as they grow older.

"The key to this is education early on, so people can learn how to use cards and live within their means," says Edwards. "People need to know how to budget, and how to save for their future. Right now it's about consuming it today. People are not planning for their retirements. And this will come home to roost."

-- Updated: April 28, 2005

 

 

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