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Psychology of Debt in Rural South India

Author

Listed:
  • Natal, Arnaud

    (University of Bordeaux)

  • Nordman, Christophe Jalil

    (IRD, DIAL, Paris-Dauphine)

Abstract

The relationship between personal debt and cognition has received limited attention, especially, in developing countries. This study focuses on India and examines the relationship between Big Five personality traits, cognitive skills (math, literacy, and Raven scores), and financial decision-making, specifically debt negotiation and debt management, while considering the weight of social identity (i.e., caste and gender). Using a panel dataset built from an original household survey conducted in 2016-17 and 2020-21 in rural Tamil Nadu and employing multivariate correlation probit analysis, we find the following. Firstly, conscientiousness is an advantage in the negotiation and management of debt, particularly for non-Dalit women, suggesting that, in a rural patriarchal context, women leverage personality traits to overcome the constraints of social identity. Secondly, emotional stability is a disadvantage in both debt negotiation and management. Thirdly, the role of cognition and in particular the Raven score is ambiguous (negative correlation with debt negotiation but positive correlation with debt management). Our results suggest that training programmes designed to improve conscientiousness, when integrated into broader macroeconomic policies, could help individuals secure better loan conditions and avoid repayment difficulties.

Suggested Citation

  • Natal, Arnaud & Nordman, Christophe Jalil, 2024. "Psychology of Debt in Rural South India," IZA Discussion Papers 17482, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp17482
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    References listed on IDEAS

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    1. Ashwini Deshpande, 2002. "Assets versus Autonomy? The Changing Face of the Gender-Caste Overlap in India," Feminist Economics, Taylor & Francis Journals, vol. 8(2), pages 19-35.
    2. Isabelle Guérin & Sébastien Michiels & A. Natal & Christophe Jalil Nordman & Govindan Venkatasubramanian, 2022. "Surviving Debt and Survival Debt in Times of Lockdown," Post-Print hal-03707084, HAL.
    3. Sumit Agarwal & Bhashkar Mazumder, 2013. "Cognitive Abilities and Household Financial Decision Making," American Economic Journal: Applied Economics, American Economic Association, vol. 5(1), pages 193-207, January.
    4. Isabelle Guérin & Sebastien Michiels & Arnaud Natal & Jalil Christophe Nordman & Govindan Venkatasubramanian, 2022. "Surviving Debt and Survival Debt in Times of Lockdown," Post-Print hal-03565131, HAL.
    5. Jonathan Zinman, 2015. "Household Debt: Facts, Puzzles, Theories, and Policies," Annual Review of Economics, Annual Reviews, vol. 7(1), pages 251-276, August.
    6. C. Badarinza & V. Balasubramaniam & T. Ramadorai, 2019. "The Household Finance Landscape in Emerging Economies," Annual Review of Financial Economics, Annual Reviews, vol. 11(1), pages 109-129, December.
    7. Isabelle Guérin & Sébastien Michiels & Arnaud Natal & Christophe Jalil Nordman & Govindan Venkatasubramanian, 2022. "Surviving debt and survival debt in times of lockdown," Post-Print hal-03509592, HAL.
    8. Isabelle Guérin & Youna Lanos & Sébastien Michiels & Christophe Jalil Nordman & Govindan Venkatasubramanian, 2017. "Insights on Demonetisation from Rural Tamil Nadu: Understanding Social Networks and Social Protection," Post-Print hal-01824464, HAL.
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    Keywords

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    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development

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