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Rethinking the debt dilemma

July 11, 2018.


With household debt in Australia at record levels, the need for financial counselling is becoming ever more important.


Financial counselling is a free, community-based service that assists people experiencing financial stress. It is a service, however, that is sometimes misunderstood by people who would benefit.


Recent research by BWA looked at what behaviour change interventions might encourage people experiencing financial stress to seek financial counselling.


The study found that relief from debt often starts with relief from thinking about debt.


What did we find?

The research was funded by Financial Counselling Australia (FCA), the peak body representing financial counsellors across Australia.


Financial counsellors know that many people are reluctant to seek help, even when they have unmanageable debt and bills they are unable to pay.


BWA researchers Brea Kunstler and Jim Curtis conducted a Rapid Review on strategies which could be employed to overcome this reluctance.


The evidence suggests that people in hardship (especially men) experience feelings of shame and powerlessness and that their self-image as capable adults gets threatened by being unable to repay their debts.


Many people simply don’t know about financial counsellors or understand the difference between them and payday lenders (who can make the problem far more dire). There is also the fear that seeking professional advice could affect a credit rating or, if it’s poor advice, make their debt issues even worse.


While it’s clear that seeking financial counselling early (rather than putting it off) produces better outcomes, much of the evidence with regards to specific interventions focused on “suggestions” only, as such interventions have yet to be empirically tested. 


What was missing from the evidence

The existing evidence was missing a more nuanced understanding of how people actually make decisions under conditions of scarcity.


Leading behavioural economists argue that scarcity is not just a lack of resources, it hinders our ability to solve problems objectively. When we struggle to focus on issues beyond the here and now, our decisions are often influenced by a range of cognitive biases – mental shortcuts – which can lead to less than ideal decisions.


So, what interventions have worked in other contexts? The review highlighted a range of behaviour change interventions that may be applied to a financial counselling context.


These include strategies related to implementation intentions, smaller and more frequent goals and incentives, compelling social norms, prompts and reminders, converting the need to be constantly vigilant to one-off behaviours or defaults and identifying greater “bandwidth moments” where people’s cognitive capacity is greater.

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Boosting the bandwidth

Getting advice early is important in the context of  reducing financial stress because both the problem and the ability to deal with it gets worse over time.


Experiencing a scarcity mindset impedes our ability to think about anything else; we become obsessed with immediate problems and these short-term decisions may not be the most sensible in the longer term.


Financial counsellors, armed with some tools informed by the behavioural sciences can therefore provide the relief from immediate pressures that people experiencing financial stress need to give them the breathing space – the “bandwidth” – to make better decisions. 

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