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Reducing Debt Improves Psychological Functioning And Changes Decision-Making In The Poor

Would reducing debt impact the poor's psychological functioning and decision-making?

A study conducted by Associate Professor Walter Theseira from the SUSS School of Business (SBIZ) and National University of Singapore found that three months after paying off debt of the low-income individuals, with the help from a charity, they experienced decreased anxiety, increased cognitive functioning, and made better financial decisions.

Titled “Reducing debt improves psychological functioning and changes decision-making in the poor”, the study was published in the Proceedings of the National Academy of Sciences on 25 Mar 2019. 

A/P Walter Theseira said: "Although our study is based on the poor, many non-poor Singaporeans also have debts. Why are some people able to handle debts easily, while others find them stressful and taxing? One difference is that the non-poor have the financial resources to manage their debts conveniently and at low cost.

We should not assume that just because we find it easy to manage debt, that we could do the same if we were poor. Our debt mental accounting costs are simply lower than the poor." 

  • Read the study here.


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