Maxed out: Why do some succumb and others steer clear?

When Jill Norvilitis, PhD, began teaching at Buffalo State University, the associate professor of psychology was shocked to realize the toll credit card debt was taking on some of her introductory psychology students.

Back when she was an undergrad, Norvilitis recalls, students didn't have easy access to credit. "In fact," she says, "when I was in college, I desperately wanted an American Express card because they gave you plane tickets at a discount, and it was really a challenge to get one."

But as a professor, she found that her students had traded the challenge of landing cards for the challenge of handling them. "Students in my classes were saying things like, 'I have to take a semester off from school to pay off my credit cards,'" Norvilitis says.

Aware that American's revolving consumer debt is rising--it increased from $554 billion in 1997 to $730 billion in 2002, according to the Federal Reserve Board--Norvilitis was seeing first-hand how consumers are getting hooked on credit at a younger age. With "pre-approved" card offers rolling in through the mail and vendors hawking free T-shirts with Visa applications on college campuses, it's little surprise that a 1998 survey by student-loan provider Nellie Mae found that close to 80 percent of undergraduate students held at least one credit card. Curious about the trend, Norvilitis decided to investigate the factors--attitudes, personality variables and others--possibly driving some of her students' debt.

She is not alone. Several psychologists have for the past decade or so been investigating what makes some people--both within and beyond the student population--more prone to debt problems than others.

For her part, Norvilitis found that none of the personality variables she investigated were significantly related to debt problems in a sample of 227 Buffalo State undergraduates. She did, though, uncover other intriguing connections. For example, in the study published in 2003 in the Journal of Applied Social Psychology (Vol. 33, No. 5), she found that students who received their credit cards through on-campus solicitations had higher debt-to-income ratios than students who received their cards through other sources.

Other psychologists have also had some luck connecting debt-proneness--in students and in the general population--to people's individual characteristics. But they've found stronger links to demographic and attitudinal variables than to any particular personality variables, like locus of control or self-esteem.

'Normal' vs. 'crisis' debt

Some people, of course, pay off their credit card bills in full each month. But others spiral into unmanageable indebtedness, owing more than they can reasonably expect to repay.

Psychologists examining the differences between these two groups' debt levels--on credit cards and beyond--have generally looked at such variables as:

• Demographic and economic factors. Poor people are more likely to be in debt, according to Stephen Lea, PhD, who studies the psychology of debt, including credit card debt, at the University of Exeter in the United Kingdom. "It's obvious," he says, "but you have to start there." Being poor, he explains, involves having both low income and high expenses--like young children to support.

In general, researchers have also found that younger people--who tend to have low or no income--are more likely to have high debt levels than older people. Among college students, men generally have higher debt levels than women. And Lea has also found that having a low income relative to your social class, and knowing many other people who are in debt, are risk factors for being in debt yourself.

• Psychological factors. Researchers have examined a multitude of possible psychological factors, but have reached few conclusions about whether they can predict credit card debt.

One of the most-investigated factors has been locus of control--a person's belief about how much he or she controls life's situations. A person with internal locus of control tends to attribute success or failure to his or her own actions, while a person with external locus of control would attribute it to outside luck. Most researchers have hypothesized that external locus of control would correlate with debt problems, and some have found supporting evidence (see further reading). But others, including Norvilitis in her study of Buffalo State college students, have found no relation between the two.

Some researchers have also found various correlations between self-efficacy, self-esteem, coping strategies and consumer debt. In a study of "successful" and "unsuccessful" credit card users, for example, Howard Tokunaga, PhD, of San Jose State University, found that the unsuccessful credit users had lower self-efficacy--or willingness to initiate behaviors and persist in the face of adversity. But other psychologists have not found similar results.

• Attitudinal factors. Attitudes correlate more reliably than psychological factors with credit card debt. Generally, and not surprisingly, people with more debt-tolerant attitudes are more likely to be in debt (see Livingstone and Lunt in further reading for an example)--although the relevant question then becomes whether the attitudes are a cause or an effect of being in debt.

Next steps

One thing researchers do agree on is that more research is needed.

"If I had a million pounds to throw at this issue, I'd be looking for people who are young, low income, have lots of children and are surrounded by others in debt, and yet somehow keep out of debt--and try to find out how they do it," says Lea. "I know from experience that such people are very hard to find, but there must be some out there."

He also says that more longitudinal research is needed to help figure out how children's and teenagers' economic education and socialization affect their later debt status.

Researchers also agree that figuring out what leads people into debt is vital to helping them avoid it. Norvilitis's finding of higher debt-to-income ratios among recipients of credit cards through campus solicitation tables has led her to question the wisdom of such marketing. In fact, partially because of research like this, more than 24 states have introduced legislation to limit credit card solicitations on college campuses. Her next research project, she says, will focus on determining the most effective types of consumer education for college students.

Meanwhile, the quest for causes of and cures for unmanageable debt continues.

"At present," says Lea, "I don't think we have the research base to know exactly what is needed" to reduce problem debt. But he and other researchers will continue working to change that.