Christian PoppeSIFO

The Problem

Market:Market: But:But:

Debt problems originate in the market context

The moral imperative:

Bills must be paid on time

The debtor faces certain demands: Notify the creditors about the

problems Be accessible Give all necessary information Be ready to negotiate Change the life style Keep renegotiated obligations

Defaulters do not always do as expected

Make stupid decisions Do not change lifestyles Do not make extra efforts to pay Make themselves inaccesible Keep the money themselves Are unreliable: do not keep

deals

Expanation: immoral attitudes They try to get money they are

not entitled to They try to hide away money They spend other peoples’

money

They do not want to payThey do not want to pay

Institutional Conditions

Civic society: Family• Friends/ network• Non-profit organisations

Social orientation: Closeness & solidarity Integration: in- and out-

gruups Protect the primary group

from outside threats Everyday dialogues

The life world Can e jeopardised by the

market

System World:

•Market + state

•.. shall ehance te life world

•.. But particularly the market has a bad reputation

Financial Skills as social knowledge

We learn financial skillsWe learn financial skills Standard packagesStandard packages

Born into a family Learn fin. norms and values Learn acceptable fin. careers Learn that conform actions yield

social belonging Lern the difference between

oneself and others This knowledge provides the

basis for routines .. And creativity

Lists of goods, service and necessary investments

Standard budget: a national package , common multiple

Variation: sub-cultural packages varying by .. resources (social class, status) .. age .. era

Group level

Standard Package Orientation

Store of knowledge Everday finance

How to transform financial resources into social prestige Whole packages

Legitimate means Normative constraints Actual market knowledge

Symbolic skills: demonstration of social belonging

Justifying everyday routines

Consumption is institutinalised Mdemonstrate similarities and

dissimilarities Dougnut focus Identity through consumption

Packages with different price tags Packages that stress different social

arenas Packages with differnt needs for

credit

Packages as social constraints

The normal situation The problem situation A conservative social constraint:

Normatively: belonging is something that is achieved

Life styles must be maintained (the home)

Life styles must be adjusted (age, technology)

Packages channel resources in certain directions

Packages tie up resources

Gdebt problems imply that one can no longer afford the package

To leave the package means: .. to take on a different, cheaper and

unwanted package .. to give up habits and routines .. to give up coveted actvities .. to lose achived scial belonging .. being unsafe: we all fear the

unknown

Coping with debt Problems

We live in the Life World:

Demands and constraints not only from the system world, but also from the life world

Protect the living conditions of the primary group

Aversion against de-classation: Mone does not give up one’s investments or consumption habits

Implication:

The socially sensible is often irrational from a financial point of view

Informant Characteristics

20 defaulters

25 – 65 yrs

More than 5 years in financial trouble

Have already applied for, or should apply for, a debt settlement

Half of them are from the middle class

Half of them are from the labour class

Between NOK 500.000 and15 mill of debts

Stages Stage 1:

Retrospectively: one should have acted differently Tsunami effect stage 2: “The real estate agent who sold me the house told me when he

quit his job in the agency: “You know, I really have to tell you that you’re about to lose everything.” I didn’t understand what he meant, not even my husband saw it coming. Nobody did until I lost the trial.” [1]

Stage 2: Kaos, avmakt, forsvar av etablerte livsstiler Sannhetens øyeblikk fase 3: “My father and aunt had both guaranteed for my business

debts, as I had done myself with my private property. When I was made bankrupt my father had to sell the house and move to a retirement home. It was tragic. He didn’t speak to me for years. My aunt had to sell her house and move to a retirement home, too. My own house went on a forced sale. Everything was lost. My marriage broke, and my wife and child moved to another town.” [32]

Stage 3: Consolidating the identity as a defaulter

“Fourteen days ago I got one of those letters: pay within two weeks or else.. Well, I’ve heard it before. I can’t let it upset me. If I did, I would not be here talking to you. I’d been six feet under, you know”

Stage 1 Financially rational action

Ethos: Do not do anything hasty Business as usual Øke Increase the income: extra jobs Reducing the expenditures : invisible items

Sosial orientation: The ostrich approach“My wife comes from a poor country. I always took a pleasure in buying her things

like expensive clothes. .. Her family is poor, so over the years we have tried to help them out economically .. When our economy got strained we behaved as if we had enough money. There was less shopping and a little less support to my wife’s family. But I knew we spent too much .. Our friends were surprised when I went bankrupt.” [45]

“Well, I just hoped I would eventually come across something smart to do and get away with it .. I thought some of my debt eventually would be out-dated and eradicated.” [28]

Stage 2 Financially rational action

Increasing the income: new job, more job, education Reducing debts: sell the home, the car, savings Big reduction in consumption Hjelp from family and friends: limited

Sosial orientation: The Ostrich revisited:

“I rented a very nice flat in the same area that was equally exclusive .. It was convenient since my daughter’s school was nearby. But it was expensive .. My daughter could have a student’s loan. We spent that” [1]

Avoid stigma Move to another city (Oslo) Psychologically extreme: run away (change of addresses, France, India) Avoid social securuty, court rooms, not read mail Hide as much of it from the employers

Stage 3 Financially rational action:

No longer any point in trying to serve the creditors

Strategic market behaviour: Not accept increases in one’s salary, not take on additional jobs or change to better paid jobs Still: A change of jobs may be convenient No longer my problem

Sosial orientation:

Single out the most important bills

“When I find bills in my mailbox I couldn’t care less, you know. I sort out the important bills and pay them with a smile. As for the rest of them, I must confess, I recognise the envelopes and leave them unopened. I throw them in the dustbin.

Take care of oneself

“Yes, I do allow myself to have dinner at a restaurant and spend some money in that way. It’s something to look forward to, you know. Each month when I get my salary I do it.” [1]

Take care of the children

“There are children around, and that’s where the problems start as far as I’m concerned. That’s the only thing I really care about. I’ve tried my best to prioritise the use of money to minimise the effects my debt problems have on the family.” [80]

Making the illegitimate legitimate• Problem:

The repayment norm is valid in the life world, too

First: make a division between formal debts and debts of honour Formal debts: the system world Debts of honour: The life world – close relations:

“I don’t pity banks .. Had I borrowed from a common acquaintance without paying back, my friends would tell me right away what a bad person I am .. Debts of honour directly characterise you as a person. This you-and-me moral is much stronger than when dealing with banks. If I had treated my friends as I treat my creditors I would get loads of reactions — well deserved ones, too, as I see it.” [99]

Formal debts: Story TellingNext: introducing a new moral principle:

Pay what you can whenever you can

Mistrust

The stories are not accepted automatically Comes on top of the financial and social losses in stage 3

All coping is marked by dissatisfaction and disappointment

Negative experiences with individual creditors are generalised to institutions and the system world as a whole

Especially among those who tell productive stories

Mistrust in Creditors Business-wise:Business-wise: “And the bank had all the information they needed, they checked and

double-checked. They knew the risks involved. So why can’t they take on some responsibility? Why only me?” [23]

Be considerate:Be considerate:“The bank forced us to sell the house when the price level was at its lowest. If they

had allowed us to keep the house, today’s value would surely have exceeded my debts and everyone would have been happy. Instead, they swept us under the carpet and ruined the whole family.” [32]

The right to live:The right to live: “Hey, when are you going to pay? Look how much you owe us, take a look at

this paper! They refused to listen to me. That I had a right to live was no concern of theirs. That’s the feeling they gave me. It’s very bad.” [8]

Mistrust in the System

The welfare system:The welfare system:“I felt like being trampled on .. They were parsimonious. I didn’t get what I felt I

should have, and I knew others who got more than enough. I felt unfairly treated.” [5]

Politicians:Politicians:“So who is to blame? It’s politics, the deregulation and release of credit .. The labour

party Minister of Finance who weeded out the problems created by the former Right Wing Government in such a way that the banks went bankrupt and the government took over all the shares. And now they got billions up their asses, right? And the properties [we lost] are now owned by the banks.” [1]

The whole ”system”:The whole ”system”: “And I’ve been to meetings and meetings and meetings, and there’s been loads of

waffle, and in the end I simply lost confidence in the whole system because I find myself without legal rights.” [32]

Social Responsibility

Avoid stage 3 ..

Mistrust Integration is threatened Defaulters, creditors,

society: everybody loses

Existing solutionsStage 3 Stage 2

Money collection

Legal protection Social programs Financial counselling

GjeldsVoluntary debt negotiations: ca 10.000 cases in 2006, including ca 2.000 that found no solution and were transferred to the court

The Debt Settlement Act

Money collection Market solutions

Private debt counselling Refinancing Bank2

Legal protection Social programs Financial counselling

Ca 18.000 cases i 2006