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Why
We Lie About Money And Debt
Americans
have some bizarre and conflicted attitudes about money. Here's why we
think it's always the other guy who's abnormal.
By
Larry Getlen, Bankrate.com (as seen on MSN.Com)
Many
Americans live in a constant state of financial ignorance or denial,
according to the Bankrate Financial Literacy Survey.
About 75% of
respondents, for example, claim they don't make any major purchases on
credit cards unless they can pay them off immediately. But 74% 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%.
But remarkably, only 3% 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.
More Touchy Subject Than
Sex
"In
the
United States
, talking about money is harder than talking about sex," says Marian
Friestad, Ph.D., 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.
"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."
'It's All About Stuff'
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."
Russell
Belk, Ph.D., 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."
Focusing On Foibles Of
Others
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." Then it's easy
to compare our behavior to the occasional actions of others and feel
superior.
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 compare 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."
Who, Me? In Trouble?
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."
ATM And Spending Like
There's No Tomorrow
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."
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