The Impacts of Emotions and Personality on Borrowers’ Abilities to Manage Their Debts

49 Pages Posted: 23 Nov 2020 Last revised: 27 Jan 2021

See all articles by Stella Rendall

Stella Rendall

University of Reading - School of Psychology and Clinical Language Sciences

Chris Brooks

University of Reading - ICMA Centre

Carola Hillenbrand

University of Reading - Henley Business School

Date Written: October 5, 2020

Abstract

This paper examines the impacts of retail borrowers’ emotions and personality traits on their abilities to engage in appropriate responses when things unexpectedly go wrong and they get into debt repayment difficulties. We establish several scenarios where borrowers are hit with unforeseen circumstances that affect their abilities to make their loan payments and we classify and evaluate the riskiness of the strategies they state that they would adopt in those situations. Via an extensive on-line survey conducted in the UK, we show that borrowers who were most comfortable about taking on debts in the first place, those who show neurotic tendencies, and those who believe that they have control over events rather than being controlled by them, are more likely to undertake high risk strategies when faced with unforeseen issues that affect their ability to meet their debt interest and repayment costs. We also find that respondents who identify as feeling excited, alert or guilty, as well as younger borrowers and those who are single or renters, are more likely to opt for risky approaches. Our findings have potentially important implications for lenders, regulators and debt counselling services regarding the types of people who are most likely to get into debt troubles.

Keywords: retail investors, attitude to debt, risk tolerance, emotions, personality, financial decisions

JEL Classification: G11, G20, J14, C25

Suggested Citation

Rendall, Stella and Brooks, Chris and Hillenbrand, Carola, The Impacts of Emotions and Personality on Borrowers’ Abilities to Manage Their Debts (October 5, 2020). Available at SSRN: https://ssrn.com/abstract=3705181 or http://dx.doi.org/10.2139/ssrn.3705181

Stella Rendall

University of Reading - School of Psychology and Clinical Language Sciences ( email )

Whiteknights
Reading, Berkshire RG6 6AH
United Kingdom

Chris Brooks (Contact Author)

University of Reading - ICMA Centre ( email )

Whiteknights Park
P.O. Box 242
Reading RG6 6BA
United Kingdom
+44 118 931 82 39 (Phone)
+44 118 931 47 41 (Fax)

Carola Hillenbrand

University of Reading - Henley Business School ( email )

Greenlands
Reading, Henley on Thames RG6 6AH
United Kingdom

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
53
Abstract Views
357
rank
473,459
PlumX Metrics