Consumers who are honest about their level of debt and join peer-supported debt counselling groups are more likely to get their finances in order than those who keep it a secret, according to a new study in the Journal of Marketing Research co-authored by Ivey Business School professor Miranda Goode.
Yet while social stigma was a key factor in keeping consumers stuck in a debt cycle, social support was an important part of the solution.
“We have this tendency, as a society, to avoid talking about our finances, and especially about debt. And if you look at it through the lens of stigma – that fear of judgement – you find that there is a group of people who are really anxious about what others will think, and that influences how transparent they are and how far they’ll go to keep it a secret,” said Goode, an associate professor of marketing and author of Helping Those That Hide: Anticipated Stigmatization Drives Concealment and a Destructive Cycle of Debt.
The study, a collaboration between Goode and Michael Moorhouse, assistant professor of marketing at Wilfrid Laurier University, Ivey marketing professor June Cotte, as well as Jennifer Wolowich-Widney, founder of debt and finance literacy site Financial Fundamentals, showed that about 20 per cent of people who were indebted in their study worried moderately to extensively about being stigmatized.
“We see the same people reporting their general tendencies around being secretive and not talking with friends and family about debt, which leads to delaying and avoiding help, and spending more in social situations to hide their actual financial situations,” said Goode.
It’s a particularly worrying problem when you consider the average level of consumer debt in Canada hovers around $22,000 per person, excluding mortgages, and is continuing to rise. Add in a 6.8 per cent annual Consumer Price Index increase in 2022 – much higher than its 3.4 per cent increase in 2021 and 0.7 per cent in 2020 amid record inflation, and this pattern of accumulating debt becomes difficult to beat.
Peer support has been shown to help in other situations where people may fear stigma, but this is the first study to look at the effect it has on well-being in the context of debt – and the first to link social benefits to a change in behaviour when it comes to debt repayment.
Goode and her colleagues conducted a field experiment with a financial education company, where consumers who identified as middle-class received financial education from professional instructors either in a private online setting with classes delivered by the instructor through a webinar, or in a community-based class, where consumers met in person with other indebted consumers. On average, people started the course with about $36,000 worth of consumer debt (not including mortgages), and an average household income of $86,000.
Participants in the community groups paid off $4,370 more of their debt compared to those in the control group (who were not offered any financial education during the study), while those in the private group paid off $3,531 more of their debt.
Those who anticipated the most stigmatization also did better in the group environment. For that segment, increasing social connection by developing supportive relationships was critical to increasing motivation to change behavioural patterns and pay off debt. Within private settings, some continued to hide their level of debt, even as they sought out personal finance guidance.
Indebted consumers who were moderately to extremely concerned with being stigmatized reported a 15 per cent increase in in their well-being when they were enrolled in the community-based course, compared to an increase of only eight per cent for those in a course with private instruction. Similarly, those who were moderately to extremely concerned with being stigmatized repaid approximately seven per cent of their debt in the community-based course compared to five per cent in the course with private instruction.
“The course gives them a bit of a cathartic release because they see there are other people like them, who feel the same way, and so they can talk about it.” – Miranda Goode, associate professor of marketing, Ivey Business School
“They have a common base of experiences, and they’re not being judged, which makes them even more motivated.”
Participants’ feelings about the size of their debt were also shown to be a more important predictor of financial stress and anticipated stigmatization than the actual size of their debt in some cases – all of which led to not only hiding debt levels, but also avoiding the help they needed to break the cycle of debt accumulation and spending.
The link between anticipated stigmatization and debt concealment was evident in a broad, diverse North American population in common debt situations – not only in extreme circumstances like being on the brink of bankruptcy or of losing your home.
When looking at recommendations for policymakers and financial professionals to help indebted consumers break the stigma cycle and reduce their debt, the study suggests community-based debt reduction courses encourage frequent, supportive and non-judgmental disclosure of their participants’ struggles with debt, emphasizing the commonality in debt experiences shared by participants.