In 2019, U.S. consumer debt reached an all-time high, surpassing levels last seen during the 2008 financial crisis. Such debt takes many forms, including mortgages and student loans. But credit card debt alone exceeded $870 billion, and most of that is the result of discretionary spending. Why are so many Americans needlessly putting themselves in the hole?
The answer might lie in the psychological profile of the debtor, according to Stephanie M. Tully, an assistant professor of marketing at Stanford Graduate School of Business. In a recent paper, Tully and her coauthors found that not all consumers feel the same way about available financing.
On one side of the continuum are those who perceive borrowed money to be entirely their own, and thus are more willing to spend it freely. On the other side are those who perceive such funds as decidedly not their own. This latter group is more likely to see the money as belonging to the bank, and thus more conservative about how they spend the money.
“What we found is that people’s feelings about the ownership of money can predict their interest in taking on debt,” Tully says. “It seems some people are fine with going into debt as long as it doesn’t feel like debt.”
The idea of psychological ownership of money came to Tully after she realized that…