Stuart Vyse is Professor of Psychology at Connecticut College, in New London. In his new book, Going Broke: Why Americans Can’t Hold On To Their Money, he offers a unique psychological perspective on the financial behavior of the many Americans today who find they cannot make ends meet, illuminating the causes of our wildly self-destructive spending habits. In the podcast below Vyse talks with Oxford editor Marion Osmun.
Transcript after the jump.MARION OSMUN: Good morning, this is Marion Osmun from Oxford University Press. I am speaking this morning with Stuart Vyse, professor of psychology at Connecticut College and the author of a brand new book called Going Broke: Why Americans Can’t Hold On to Their Money. Good morning, Stuart.
OSMUN: Well it’s nice to talk with you. I am very excited about your book and I thought we should just start off by talking a little about what it’s about, I think that the title and the subtitle talk actually characterize what it’s about, which is the current financial crisis that many thousands of Americans are finding themselves in today and actually have been for a number of years and just to get a sense of the scale of the problem that we’re facing these days, can you give us a sense of just how many people are in financial trouble, whether in outright bankruptcy or just in serious, serious debt to the point where if just one thing goes wrong they fall through the cracks?
VYSE: Well, yeah, of course, it’s very wide-spread. Some of the figures are hard to know for sure, but estimates are that as of 2004, the average household had about $7000 in credit-card debt, and in that same year about 23% of Americans said that they had maxed out a credit card before. Before the bankruptcy bill passed in 2005, personal bankruptcies were well over a million a year. They were about 1.6 million a year. That’s come down somewhat because of the bankruptcy bill, making it a little bit more difficult to declare bankruptcy, but there are still about 700,000 people a year, at this point, declaring bankruptcy, and foreclosures are really up there at the moment and the savings rate has gone negative. People on average, americans on average spend more than they make. So, the circumstances are very tenuous for many people.
OSMUN: Yeah, well, that’s scary. The focus of your book is largely on the reasons that so many people are facing this kind of difficulty or are already into it. Can you talk a little bit about that? The book specifically addresses various social and economic trends of the last thirty years. Can you just touch on a few of them?
VYSE: Sure. Obviously, one piece of the picture is the easy availability of credit, which has exploded in the last thirty years with the development of universal credit cards like Visa and Mastercard. But also, the ways in which you can unload that credit have gotten much more sophisticated. We have 800 numbers now for ordering so you can act on impulse very quickly. The internet, of course, makes shopping a very impulsive sort of thing. And our homes have been invaded and turned into commercial marketplaces in a way that they really weren’t thirty years ago. When you were home, back then, you were pretty much insulated from being able to spend money. But now of course, the Home Shopping Network and Ebay and any other number of ways of spending money have come home, so that there is no respite, you’re always in a sense being confronted with decisions about “Should I spend, or should I not spend?”
OSMUN: Talk a little, if you would, about one of the underlying psychological phenomena that runs through the book so far as what, in addition to the social and economic trends out there, that have developed over the last thirty years, is there also a personal attribute that is part of our heritage as human beings, talk a little bit about that. In other words, the psychology of choice, and why, in this current environment, this particular trait, for lack of a better word, is so easily compromised or manipulate-able, there is a whole literature about this.
VYSE: This is actually a relatively new sort of understanding about our psychology, which is that when a choice leads to a very immediate outcome, we tend to choose differently than if we have to wait. Waiting makes us wiser about many decisions in life, and if we think in the long-term about what we really want, long term financial stability, savings, being able to live comfortably in the future, we tend to make decisions that are pretty wise. But if we’re standing in a store with a credit card in our pocket and an iPod staring us in the face, then those things all fade from view, and the iPod becomes very, very prominent in our decision making.
OSMUN: Well, the maker of that iPod wants that exactly to be the case.
VYSE: Of course, yes. That’s the reason why it’s been made so tempting is because it works well for the manufacturer and the marketplace. So, that ability to sort of manipulate delays and make things much more immediate causes us problems. We have to make much more deliberate thoughts about what is the real long-term thing that we want, and how will this immediate decision affect the likelihood of getting that larger, more important, delayed reward. It gets very complicated in today’s world to handle all these moment-to-moment decisions.
OSMUN: Well, and the pressure is so enormous from the point-of-view of the consumer economy. It’s been good for the economy that these pressures on the individual’s ability to self-limit and restrict impulse buying essentially is exactly what has driven so much growth in the last many years. The question is, really, that you do address at some length, is the need to make a balance, between what is good for the economy, at a macro-level, and what is good for individuals for their own financial health and security,
VYSE: Right. This economy, which is a very commercial economy at the moment, has grown at the expense of a lot of individuals, who are sort of quietly suffering with debts that they can’t pay.
VYSE: As technology introduces things we just had to live without before, we had no idea how it could be any different, but now, PalmPilots, computers, cell phones, these are all things that didn’t exist before, and now for many people, have reached that level where they “need” it.
OSMUN: Well, yeah. They almost become part of people’s identities. Watching these kids—they’re not always even kids, people middle-aged and up, walking around with their cell phones, talking to people, or listening to their iPods, and it’s just become part of almost what one wears.
OSMUN: So you do delineate these kinds of phenomena that have happened apart from the trends, socially and economically, but also the technology that has driven so much of this, as well as how that affects people’s abilities to make personal choices that are a bit shrewder than in some cases. That has been the case for many thousands now that have been on the precipice of ruin. Talk a little bit, if you wouldn’t mind, about people you interviewed for the book, as a way of giving a human face to the sometimes outright tragedy of the economy we’re facing, as well as those who have not quite reached the depths of tragedy but are terribly struggling—the ones that you spoke with as you were writing the book.
VYSE: Yes, it was a really interesting exercise to seek out these people, many of them who had declared bankruptcy or who were in a serious problem with debt, and get them to talk to me about their stories. There was the woman who had always done very well academically at school, who was working at a very good job, and who decided to go to law school to better herself. She took out school loans, as most people do now, and then discovered that she couldn’t actually do it. She could not pass through law school. She had some personal problems at that time, and ended up with $50,000 in school debt and school loans and no degree, and other debts as well. So, this is just that unforeseen circumstance—attempting to do what people would want us to do—to raise themselves up and make more money, but it didn’t work in her case.
OSMUN: So she just discovered that her mind didn’t work in the way that being a lawyer or training to be a lawyer required, on some level, is what I understand. And meanwhile, she had worked other jobs…
VYSE: Yeah, she had a Master’s degree in another subject already, she had definitely done well before, so it was a new experience for her not to be able to succeed, in this case.
OSMUN: In the book, you do pay some attention to making some recommendations to people, both regular folks, like you and me, insofar as what they can do to avoid these kinds of debt problems and if they are already in debt, what they can do about it. Also, you have recommendations for broadly speaking, having to do with policy, that are really for people in Washington and in industry, what they might consider so far as what can help avoid a major kind of crash of some sort. Can you help us a little bit about both sets of recommendations?
VYSE: Sure. For individuals, I think a very important goal is to create savings. We have gone away from saving for a rainy day as a way of protecting ourselves against emergencies, and people use their credit cards now when their car breaks down or whenever they get into trouble. That works in the short run, but it creates this vulnerability, that if you ever have an income problem, either lose a job or decrease your income, then you’re in trouble. So the way to avoid that is to go back to savings. Thankfully, the new field of behavioral economics really leads to a number of good suggestions on how to make saving less painful. So I have a number of those kinds of suggestions in the book about how to save without it being painful without it being too difficult, without requiring a great deal of willpower. Also, I make a number of recommendations on how to decrease the influence of the marketplace on your everyday life.
OSMUN: Yeah, like what made me chuckle is “Kill your television.”
VYSE: Exactly. If we could all do that, that would help a lot.
OSMUN: Yeah, but in lieu of doing that you have a lot of other recommendations that make a lot of sense, in terms of, if you’re sitting at home, you don’t have to take a gun and blow your tube apart, but you can talk a little bit about what some other things are…some other ways, practical ways that you can lash yourself to the mast. And you actually do have a picture in the book of the Greek hero, Ulysses, lashing himself to the mast so he’s not lured to the dangers of the Sirens. And maybe one or two other points you might mention about people, regular folks, that are just sitting in their houses, what they might do to help themselves.
VYSE: Yes, well, obviously, since I’ve talked so much about the immediacy of purchases and how powerful that is, much of the recommendations have to do with building in delays, in asking yourself, “Is it really important that I have this thing right now, or not, and can I put that off?” If you are able to put off, even for short periods of time, certain decisions that you are about to make, often we forget other things that come forward that are more important, and we don’t make that impulsive purchase. So, those are some of the things. And the other thing is, in fact, to try and limit the impact of advertising in your everyday life, and to get rid of your television, try to avoid it outside. And of course, some of this is going to take policy decisions. I think that we’ve been sort of abandoned by our legislators in terms of putting any kinds of controls on where we have to confront advertising where we are impinged upon with decisions. Our cell phones, now are a new way to spend money. Every avenue into our pocketbook is being explored, and I think it’s reasonable for citizens to say, “Enough is enough” and “I’d like to have some quiet time where I don’t have to be confronted by advertising and the decision on whether to buy something or not.”
OSMUN: Yeah, I think the advertising needs some healthy developments on that score in terms of say, the Do Not Call registry, so that you’re not hit with telemarketers. That became quite, at least in New York State, I thought it was nationwide, where you could put your name on a do-not-call, so you’re not hit with sales calls.
VYSE: Right, that’s a great thing. It would be nice if there were something like that for the internet as well. Those are great initiatives, but there’s a lot more that could be done. I know that if you walk around any large city today, you can’t go for three seconds without being confronted by some sort of advertising, inside an elevator, in a bus, wherever you go, it’s a consumer world.
OSMUN: Well, Stuart, this has been a pleasure. I want to commend you for this book called Going Broke: Why Americans Can’t Hold On to Their Money. Also I wanted to mention that Stuart is the award-winning author of a book called Believing in Magic that was published by Oxford University Press in 1997, I think and is still in print. It’s a book about superstition, why people believe in superstition, and there’s an interesting connection between these two books, Stuart, I don’t even want to hazard what it is, but it has to do with irrational behaviors, is that right?
VYSE: That’s right. I mean, superstition is one form of irrational thinking, and this new book is about a kind of irrational decision-making that has a very important influence on all our lives. I hope the book does some good and I’m very pleased with it, it’s been great working with you Marion.
OSMUN: Well, it’s been a real pleasure for me, too. Thank you very much, and have a good day!
VYSE: You too. Thanks a lot.
OSMUN: Thank you.