Research from Leiden University reveals that financial constraints significantly influence individuals’ decision-making processes, particularly regarding whether to act immediately or defer action. Procrastination and avoidance behaviors, stemming from financial limitations, exacerbate the sense of loss of control over one’s finances. However, it’s worth noting that the impact varies across different cultures.
The researchers explored the relationship between financial scarcity and decision-making. Their findings indicate that individuals facing financial challenges tend to prioritize short-term gains over long-term planning.
“They more often opt for 100 euros now rather than 200 euros later. People make this choice based on their financial situation, regardless of their personality,” the researchers explain.
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In the study, participants were assigned a household task aimed at earning money to cover bills. The researchers manipulated incomes, leading some participants to incur debt while others did not. Interestingly, those with debts tended to opt for short-term solutions, despite exacerbating their financial difficulties in the long run.
For individuals with limited financial resources, prioritizing immediate needs often takes precedence over long-term planning. Saving for the future or investing in education becomes challenging when daily necessities must be met.
Moreover, the research highlighted a correlation between financial scarcity and procrastination. A longitudinal survey conducted among a representative sample of the Dutch population revealed that individuals with fewer financial resources exhibit tendencies towards procrastination, such as avoiding opening letters or checking their bank accounts. Paradoxically, this procrastination contributes to heightened financial difficulties down the line.
Spiral of helplessness
“We see a negative spiral of helplessness, lack of grip on your finances, and no opportunity to make improvements; people then start to procrastinate and avoid issues,” the researchers explain.
The sense of loss of control that accompanies financial hardship varies significantly across cultures. In a cross-cultural study spanning 52 countries, researchers observed substantial differences in how individuals perceive their level of control when faced with financial constraints.
Initially, the researchers speculated whether countries offering state benefits might mitigate this feeling of loss of control. However, contrary to expectations, the study revealed that even in these nations, individuals grappling with financial scarcity reported heightened sensations of powerlessness.
Cultural context
A potential explanation lies in the cultural context. Countries with robust social welfare systems often espouse individualistic values, where reliance on state support is emphasized. In contrast, in more collectivist or traditional societies, familial networks play a crucial role in providing financial assistance.
Consequently, individuals in these cultures may feel a greater sense of agency and control over their lives, even in the face of economic adversity. Seeking financial aid from friends or family members instead of formal institutions like banks may reinforce this perception of control. Traditional and collectivist values thus serve as a buffer, preserving individuals’ sense of autonomy despite limited financial means.
“The aim the research is to gain a better understanding of the situation in which people find themselves, because you then see possibilities for other interventions,” the authors conclude. “Not increasing the stress by imposing fines, but allowing people to feel more in control. You might be in difficulties now, but we want you to get out of this situation and these are the steps that will make it manageable. This lets people feel more in control.”
