Culture, Attitudes, and Debt

Rather than a post with a lot of (supposed) answers, today I have a post with a lot of questions. My goal is to start a discussion that I hope our insightful readership will take up in the comments.

Lately, I have been thinking a lot about cultural attitudes toward debt. I am not really sure what I mean by "cultural attitudes." The idea is that Bob Lawless, sitting here in Champaign, Illinois, has certain beliefs toward debt--when it is appropriate to use debt, when borrowing is irresponsible, and so forth. These beliefs about debt might differ from someone who had different life experiences because of different socioeconomic circumstances, because of experiences in another country, or because of other differences that broadly travel under the rubric of "culture." There is empirical evidence that, with "culture" defined in this broad way, differences in cultural attitudes toward debt exist.

Do attitudes toward debt result in differences in behavior? Again, I think the evidence suggests that the answer is "yes." Even after controlling for basic economic factors such as income and wealth, attitudes toward debt affect the amount of borrowing when looking at individual behavior. None of this is surprising -- if I am inclined to borrow, I am more likely to do so. The more difficult and (perhaps?) useful question comes in aggregating individual attitudes into a cultural attitude about indebtedness that has explanatory power about behavior. Folk wisdom tells stories about widely held attitudes toward debt affecting borrowing behavior in some locations. For example, some Asian and European countries are sometimes associated with thriftiness and a disinclination toward indebtedness. I am not suggesting these stereotypes are necessarily true, just that they exist.

Institutions, both financial and legal, seem to play a big role in determining how much personal indebtedness exists in a society. When U.S.-style legal and financial institutions arrive in a society, U.S. levels of personal indebtedness are approached even in places where personal indebtedness had previously been rare. Korea and Spain come to mind as examples. Do these experiences suggest that legal and financial institutions play a larger role than cultural attitudes in determining behavior toward indebtedness? Concomitantly, would that mean that there are certain behaviors around indebtedness, such as a tendency to discount the probability of future bad events, that are more or less "hard wired" in the human brain?

What is the extent of research on these topics? Poking around our library, I can quickly find lots of studies looking at differences in actual usage of debt and ability to borrow. I have had less success finding studies looking at attitudinal differences toward indebtedness. Attitudes toward indebtedness might just be be a subset of attitudes toward promise making and promise keeping more generally because indebtedness is just a promise to pay money. My instinct, however, is that a promise to pay money is qualitatively different than most other promises.

Finally, there is an important question for me as a legal scholar. Are there policy payoffs to thinking about cultural attitudes about debt? The answer is probably "yes" at the general level of crafting policy strategies. If cultural attitudes about debt are easy to change or strong determinants of behavior, for example, then regulatory solutions would be most effective in working on shifting those attitudes toward whatever policy solution has been deemed appropriate. If cultural attitudes toward debt are resistant to change or weak determinants of behavior, then regulatory solutions would more effectively focus on the legal and financial institutions.

All of these thoughts are preliminary, and I would be appreciative of any suggestions, correctives or additions the Credit Slips community wants to make.