Paying off debt can help your brain think more clearly and make better decisions, study finds
- The researchers found that debt relief lowered the ‘mental burdens of the poor’
- About 200 low-income participants received money to pay off part of their debts
- Over time, it led them to make better financial decisions and reduced anxiety
A new study has found that resolving debts can lighten the load in more places than just your wallet.
Researchers surveyed 200 low-income individuals on their decision-making skills and anxiety before and after their debt was partially paid off.
They found that debt relief lowered the ‘mental burdens of the poor’ that previously prevented them from making better decisions, among other things.
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A new study has found that resolving debts can lighten the load in more places than just your wallet. A team of researchers surveyed 200 low-income individuals on their decision-making skills and anxiety before and after their financial debts were partially paid off
The study was conducted by the Social Service Research Centre at the National University of Singapore and published recently in the journal Proceedings of the National Academy of Sciences of the United States of America.
Participants in the study received debt relief worth up to 5,000 Singapore dollars, or roughly three month’s household income.
The charity payments were put toward portions of participants mortgages, utility bills and municipal debts.
While all participants received the same dollar amount of debt relief, not all had the same debt levels – some had more debt accrued compared to others, meaning they had more debt leftover after the charity donation.
They were then told to take a survey that measured anxiety and cognitive functioning, as well as financial decision-making.
The survey was given to participants before they received debt relief and then three months after receiving debt relief.
Researchers found that participants’ average error rates in cognitive function tests dropped from 17 percent to 4 percent after their debt was reduced.
Additionally, participants who reported generalized anxiety disorders went from 78 percent beforehand to 53 percent after debt relief.
The graph measures participants’ error rates on cognitive function tests before and after debt relief. Error rates dropped from 17 percent to 4 percent after debt was paid down
Present bias, or the tendency to value immediate gratification over long-term goals, fell from 44 percent to 33 percent among respondents.
The results demonstrate the ‘bandwidth taxes’ that can weigh on people trapped in the weight of debt.
Similar research conducted in the U.S. has showed comparable outcomes.
The findings also challenge the commonly held belief that the poor are in debt ‘because of their personal failings,’ said Dr Ong Qiyan, a research fellow with the Social Service Research Centre.
‘Our study shows that because debt impairs psychological functioning and decision-making, it would be extremely challenging for even the motivated and talented to escape poverty,’ Qiyan explained.
‘Instead, the poor must either have exceptional qualities or be exceptionally lucky to get out of poverty. It is hard to be poor, harder than we thought.’
Short of paying off debt, people can minimize anxiety and mental fatigue associated with it by consolidating their debts, or combining multiple debts into a single payment, thereby simplifying the payoff experience.
