Beyond cognitive failure: examining consumers’ inaction in debt management

This thesis examines consumers’ inaction in debt management. It departs from the observation that the vast majority of consumers with problem debt in the UK, but also elsewhere, does not resolve their situation and lives with such debts on a prolonged basis. This empirical social problem has been left unaddressed by the existing literature. Also policy has thus far failed to effectively address a central fact: unpaid debt continues to grow. This thesis aims to fill a “theory gap” in consumer behavior research. The typical approach in this field to consumers’ financial decision making relies on a single core assumption: that the problem of over-indebtedness is the result of individual cognitive failure, leading to the idea that consumers fail to pay their debts because they do not know enough or do not think rationally enough to manage their money. In “history of science” terms, anomalies to this prevailing theory have built to the point that a paradigm shift is in order. I posit that the blinders typical of what Thomas Kuhn called “normal science” have kept consumer behavior research from asking obvious questions about the problem under study. Little consideration has been given to individual conditions and problematic relationships between debtors and their creditors that together form a crippling system in which inaction in debt management occurs. Using mixed methods, I offer a grounded-theory approach that helps to better grasp the structural elements in inaction in debt management. This is followed by hypothesis testing using binary logistic regression analysis. On this empirical basis, I build an argument that identifies outstanding accounts with systems that consumers interact with by necessity (and the inefficiencies therein) as a major component of inaction. I label this “system debt”, a term that is illustrative of the structural elements that limit the type of consumer choices that are generally assumed under CB’s cognitive paradigm. In-depth interviews with debtors further illustrate how these presumed choices are not realistic given consumers’ circumstances. The findings illustrate the importance of research being grounded in consumers’ lived experiences.