Financial problems change our behaviour

Financial problems change our behaviour

For citizens in many municipalities, financial problems are the most common reason for seeking professional supporti. Moreover, professionals observe that the debts are often overarching. They form a hindrance to making headway in other domains. This observation presents district teams and professionals who conduct integral intakes with the question: what is the place of the resolution of finances in the family plans that are to be drawn up? In this article, Peter Wesdorp and Nadja Jungmann explain how financial problems influence people's behaviour, and they translate the current knowledge into five concrete suggestions for working more effectively. This article is a preliminary publication of a broader contribution to this subject that they are writing for Platform31 and which will appear this autumn.

The impact of financial problems is great: lengthier use of benefit payments, a higher sickness absence rate at work, worse relationships with family and friends, increasing psychological and physical complaints and a greater chance of recidivism in the event of criminalityii. Through paying off debts, not only is the well-being of the debtor promoted, but society too is spared future costs. And yet there are more citizens with unpayable debts than ever. District teams and professionals in integral intakes often do not really know how they can best, and most rapidly, get these families back on track. If stress related to finances reaches a high level, these families seek help. But if the situation has (somewhat) stabilised, then they often disengage again. They do not use the relative shelter of the stabilisation to tackle problems in other areas of life or to work towards more structural

solutions. They muddle through the multi-problematic situation which they are in, until the following crisis crops up. By having more knowledge of the background factors to “muddling through”, professionals in district teams and integral intakes can draw up better family plans. In the first part of this article, we give an explanation for “muddling through” and in the second part we make

suggestions, based on the explanations, for a more effective way of working. Financial problems limit our problem-solving capacities

The resolution of financial problems and the outgrowing of poverty is a long and complex path. In addition, it does matter whether you grew up in a context of poverty, uncertainty and crises from an early age, or whether you got into financial difficulties only later in life. To begin with, we describe here how poverty and uncertainty exert an influence on the development of the brain. Subsequently, we describe how financial problems in the sense of scarcity also influence behaviour among people who grew up in stability and sufficient prosperity.

Poverty and uncertainty exert an influence on the development of our brains

Anyone who wants to subdue the dynamics that creditors cause, wants to demonstrate healthy financial behaviour and wants to increase income so that poverty becomes a thing of the past, is faced with a real challenge. Amongst other things, you have to be able to get by on a (very) low income, buy nothing for which there is no money, be able to think up solutions for unforeseen expenditures and have a plan as regards how training or work-experience can be a step up to a higher income. It's no easy matter, for example, to be in debt, with a limited education, a poorly-paying job, with support from uncertain public provisions, responsible for the care of children who

Opmerking [JH1]: In de brontekst stond hier een typfout: Patform31

are lagging behind at school, and then to pursue a training course which is supposed to make it possible to acquire a better income and to really get out of povertyiii. In this context, poverty can only be transcended if you are capable of handling all these areas of life simultaneously, on the basis of a longer-term vision.

In scientific terms, the foregoing demands that people possess well-developed executive functions. This implies, inter alia, that you can do the following things: set priorities, consider alternatives, initiate and complete actions, work purposefully, organise, focus, regulate emotions, reflect on and learn from one's own actions.

Well-developed executive functions are thus crucial to resolving financial and other problems, but in recent decades it has become clear that lengthy exposure to poverty leads precisely to these functions not (properly) developing. Anyone who grows up in relative prosperity and experiences that life is filled with opportunities learns to make plans, gets the space to try out alternatives, seeks the best choices, weighs up options and invests in the future by postponing the satisfaction of needs and learns what the benefits of this are. But anyone who grows up in poverty and/or uncertainty learns primarily to react to acute dangers and threats, to focus on urgent problems and does not plan far aheadiv. The circuits in the brain that are necessary for the development of strategies for

achieving things in the future are simply not laid down. They do not become developed because they do not get usedv. In the light of this, we must realise that financial problems make themselves felt in a limited ability to cope in all sorts of areas of life (such as parenting, work, health, accommodation and finances, amongst other things).

Specifically translated to the problems concerning household finances, the above means that the stabilisation or resolution of the debts is a necessary step, but that it cannot then be taken for granted that this will be lasting. The lack of functions which are crucial to the ability to demonstrate healthy financial behaviour carries with it an acute risk of the occurrence of new financial problems. For this group, this means that in addition to needing help in the stabilisation and/or resolution of the debts, they also need support in order to develop the lacking but crucial executive functions or – in the short term, at any rate – to compensate for them. To achieve the aim of realising a lasting ability to cope financially, Debt Services processes among this group must start to include more support than they currently do.

Even with well-developed executive functions, financial problems influence our behaviour

Anyone who has well-developed executive functions is a good deal better-placed as regards finances than those who lack these functions. But even if the executive functions are well developed, financial problems affect people's behaviour stronglyvi. Research shows that scarcity of money leads to people taking worse decisions, making more mistakes and starting to live from day to day. Unintentionally, they sustain their problematic situation or they exacerbate it. Other (likewise important) matters get too little attention. Scarcity takes up so much mental energy that too little thinking capacity – bandwidth – remains for precisely those matters that could put an end to that scarcity, such as debt counselling, work or education. You could say that among people whose executive functions are sufficiently developed, scarcity ‘hijacks’ the ability to get out of the problems. We are inclined to regard people who are unemployed but make hardly any job applications as being unmotivated. Scarcity can also be the explanation: their thinking is dominated by worries about

money. They live from day to day and hardly realise that not applying for jobs gets them into deeper problems (because it brings about a cut in their benefits).

Translated to problems concerning the household finances, thinking scarcity through yields the notion that we must unburden people whose executive functions are sufficiently developed. By nullifying the experienced scarcity, the bandwidth that they need in order once again to independently shape their lives is freed up. The stabilisation of the finances and with that, the nullification of the scarcity and the destructive behaviour which derives from that is then crucial. Significance of brain development and scarcity for district teams and Debt Services

In the past two years, awareness of the phenomenon of scarcity has grown. That poverty and uncertainty contribute to causing our executive functions not to develop, or to develop only to a limited degree, is still much less well known. When giving support to people with financial problems, it is crucial to incorporate the knowledge concerning scarcity and brain development. Only then are we capable of contributing to a lasting development or a lasting restoration of financial autonomy. One first important notion that we must derive from the tenets dealt with above is that we must be much more careful with the label ‘unmotivated’. ‘Not wanting to’ often turns out to be ‘not being able to’, after all. A second important notion is that of a different manner of working by district teams and Debt Services. Anyone who realises that in the event of scarcity the executive functions are as it were paralysed and that with uncertainty and poverty they do not become developed, is going to look with different eyes at our current way of working. In the subsequent paragraphs we elaborate on the ways in which the current scientific insights that have been dealt with in this article can be incorporated into practical implementation.

1 Investing in prevention and early detection

Whether someone grew up in poverty and uncertainty or gets into financial problems at a later age, in both cases debts have great impact on behaviour and the possibilities of resolving the debts. Once the debts have become problematical, the behaviour changes and the chance that people can resolve their financial problems without help from a volunteer or a professional becomes ever smaller. Reasoning on the basis of the enormous social costs that debts cause, it is crucial to invest in debt prevention and early detectionvii. After all, it is becoming clearer and clearer that the process of indebtedness is just like a fyke net. The deeper that people get into it, the greater the impact on their behaviour and the smaller the chance – because their behaviour changes – that they can still get out of it independently.

2 Broad access

Scarcity and under-developed executive functions form an obstacle to people getting out of financial problems independently. Viewed in this light, the failure to bring paperwork to an intake must not be seen as a sign of limited motivation. It is indeed quite possible that people do want to get out of the problems but that their possibilities for action are not sufficient to comply with the strict admission requirements for Debt Services. An effective approach to financial problems begins with opening up stabilisation of the finances to everyone who needs that. Many municipalities formulated all sorts of admission criteria around 2012. Recently, State Secretary Klijnsma announced that municipalities are

Opmerking [JH2]: In de bron was dit ten onrechte gespeld als ‘Kleinsma’. In de voetnoot was de naam wel juist gespeld.

obliged, on the grounds of the Municipal Debt Counselling Act, to make, for each citizen, an

individual estimate of the possibilities of settling the debtsviii. Broad access to Debt Services is crucial in preventing people who do want to get out of debt but are restricted by their possibilities of action, as in the current situation, from continuing to ‘hang around’ for years in front of the gate, with all the attendant negative consequences on other areas of life.

3 A different way of coaching and other goals

Those who seek help for financial problems have need, in all cases, of stabilisation of the finances, in order to create calm. In that period of calm, it becomes clear whether the dynamics of scarcity are in play, or that people are lacking in executive functionsix. Against a background of stabilisation, possibilities arise once more. In the case of scarcity, people can – with supervision – fairly quickly start giving shape to their lives themselves again. If poverty and uncertainty have led to the executive functions being under-developed, then one must address the question as to what professionals (in district teams or at Debt Services) can do to facilitate the functions still becoming developed or whether they can be compensated for.

Recent brain research shows that our brains are capable of continuing to develop, even at a later age. Thus, our brains are not static, but plastic. Every time that we concentrate on something, every time we do something or every time we learn something, something changes in the structure of our brain. By supervising people in a good way, we can help them to develop the circuits for the executive functions. And improvements in executive functions not only have a positive effect on our dealings with finances, but they have a plausible effect on all areas of life (including parenting, personal relationships, education and career). The coaching of people who have financial problems and moderately- or poorly-developed executive functions should thus have long- and short-term objectives. The short-term objectives are to tackle acute and threatening situations. The long-term objective must be to reinforce the executive functions (learning to plan, organise, reflect on one's own actions). In the day-to-day supervision, the reinforcement must go hand in hand with the tackling of acute and threatening situations. As time goes on, the intention is that thanks to the reinforced executive functions, progressively less support is required for tackling acute and threatening situations. Experience with this in the US indicates that the investment in time for the purpose of reinforcing executive functions is manageable. There are also situations in which the long-term objective will not be to reinforce the executive functions but to help the person in question to gain insight as to where his or her weaknesses are and to learn how he or she – with help from his or her own network – can compensate.

Methodologies such as Sturen op zelfsturing (Guiding towards self-guidance)x and new coaching technology such as (serious) games aimed at the development of memory, focus and attention, impulse control, organisation, problem-resolution and multi-tasking are, within this framework, a promise for the futurexi.

4 A different organisation of service provision

As well as other coaching objectives, professionals who work in district teams or conduct integral intakes can also work more effectively by incorporating a focus on paralysed or limited executive functions into the process of carrying out their activities. Examples of ways in which this can be fleshed out are:

 The creation of low thresholds for access to service provision;

 reducing the number and the complexity of decisions; for example, by giving good default choices as regards saving and insurance policies, amongst other thingsxii.

 Planning cognitively-challenging tasks such as learning and complicated discussions for the morning, because people then have greater cognitive capacity at their disposal.

 Offering essential information in a simple manner, through several channels, frequently repeated with friendly illustrations.

 Dividing up long-term objectives into short-term objectives and clearly elaborating the advantages and disadvantages of the achievement or non-achievement of those objectives, so that the consequences for multiple areas of life become clear.

 Providing an environment with hardly any distractions (thus, no interviews in busy spaces) and in a way that is warm and inviting (for example, by arranging children's crèches at places where people have to make decisions, one prevents a competing demand on their attention from being made. This increases the chance of a good and lasting decision).

 Offering checklists, visual aids and reminders. Because people who are caught up in these dynamics more frequently have problems with personal organisation, remembering deadlines, sticking to agreements and following processes which involve multiple steps.

 Making more income available – by way of rewarding behaviour – so that the effect of scarcity is reduced.

5 A broad perspective

Scarcity and limited executive functions contribute to people not properly seeing how problems and issues are connected. The consequence is that they do not develop any strategies for tackling the problems coherently. By mapping out multiple areas of life coherently, people are supported in contextualising their decisions and placing them on a timeline. The coherence affords insight, and they can develop a hierarchy of importance. A broad perspective goes much further than scoring a client on the Self-reliance matrix. It demands an integral interview in which people are challenged to personally discover the connections between the different areas of their lives (for example,

preventing eviction is a way of caring for my children properly). The professional must not tell people how they should tackle their problems but challenge the other person, through clever and open questions, to set objectives themselves, to develop plans and to persevere with them. Generating insights into where the households stand as regards the steps that they still want to take helps them to look beyond the most acute problems. It provides them, as it were, with an integral to-do list. Households gain insight into their own progress and thereby build up belief in their own ability and ownership, while the coaching is aimed at the development of the necessary executive functions. The broad perspective helps the coach and the household to take a distance from acute problems and to look at the greater changes that are necessary.

Significant results have already been achieved in the United States with the above-described suggestionsxiii. Knowledge and insight into the working of the brain makes it possible to develop approaches that work better than what was formerly customary.

Peter Wesdorp and Nadja Jungmann are co-founders of the Gilde Vakmanschap (Guild of

debt collection, re-integration, and social support. Nadja Jungmann is also Lecturer on Debts and Debt-collection at the Hogeschool Utrecht (Utrecht University of Applied Sciences).

i In Alphen aan den Rijn, for example, financial problems are the most important reason for citizens to request help. Volkskrant (newspaper), 9 May 2015, Wie krijgt wel een traplift in Alphen? (Who does get a stair-lift in Alphen?)

ii UWV, Wie heeft schuld? (Who is to blame?)Een kwantitatieve analyse van schulden bij

uitkeringsgerechtigden, (A quantitative analysis of debts among van benefit recipients), Amsterdam: UWV, 2015. N. Jungmann et al, Onoplosbare schuldsituaties (Unresolvable debt situations), Utrecht: Hogeschool Utrecht (Utrecht University of Applied Sciences), 2014

iii S. Halpern-Meeking et al, It’s not like I’m poor; how working families make ends meet in a post-welfare world, University of California Press, 2015

iv In this connection, think in terms of growing up in chronic stress as a consequence of poverty, abuse, moving home, substance abuse by parents and suchlike.

v D.A. Hackman et al, Socioeconomic status and executive function: developmental trajectories and mediation, in: Developmental Science, 2015

vi S. Mullainathan & E. Shafir Schaarste; Hoe gebrek aan tijd en geld ons gedrag bepalen, (Scarcity: How lack of

time and money determine our behaviour,) Amsterdam: Maven Publishers, 2013

vii N. Jungmann et al, Preventie: voorkomen is beter dan genezen, (Prevention is better than cure), Utrecht: Hogeschool Utrecht (Utrecht University of Applied Sciences)/ Hogeschool van Amsterdam (Amsterdam University of Applied Sciences), 2013

viii Letter of 10 December 2014 from Staatssecretaris (State Secretary) Klijnsma

ix In order to be able to offer stabilisation, it is crucial that the national government provides a firm attachment-exempt threshold so that there is no threat of social insecurity, as well as providing an integral state debt-collection vision so that debt-collection takes place in a co-ordinated manner and does not drive people even further into the dynamics of scarcity.

x P. Wesdorp et al, Het heft in eigen hand; sturen op zelfsturing, (Taking control into one's own hands; guiding

towards self-guidance), Den Haag: Raad voor Werk en Inkomen (Council for Work and Income), 2010

xi M. Zaat, Effectiviteit en acceptatie van gamification, (Effectiveness and acceptance of gamification), Utrecht: Hogeschool Utrecht (Utrecht University of Applied Sciences), 2012

xii R. Thaler & C. Sunstein, Nudge; naar betere beslissingen over gezondheid, geluk en welvaart, (Nudge: towards better decisions about health, happiness and prosperity), Amsterdam: Business Contact, 2008. xiiiR. Liberman, A Plan for Building Skilled Workers and Strong Families through the Massachusetts TAFDC (Transitional Aid to Families with Dependent Children) Program, Boston: CWU, 2013