Perceptions Equal Reality in Consumer Debt Counseling

Subjective Measures of Success Are Just as Important as Objective Measures.

In both profit and non-profit debt counseling agencies, the mission is to decrease the consumer's debt and improve their financial well-being. How do you know if this mission is being accomplished? The answer appears to be straightforward: simply look at your customers' financial information and compare their current total debt with the amount of debt they had when they first came in for services.

Unfortunately, it is not that simple.

While it is true that comparing the past and present debt of your customers will give you an objective measure of your success, a subjective measure (from the customers' point of view) is also necessary. Jing Jian Xiao, from the University of Arizona, led a study on financial behaviors of consumers in credit counseling, published by the International Journal of Consumer Studies. The results of this study indicated that both economic and non-economic factors may contribute to positive financial behaviors. One of the non-economic factors identified was a person's self-evaluation of financial behaviors, a subjective measure. The reason a subjective view is necessary in assessing debt counseling success has to do with the intimate relationship between attitudes and behaviors.

People intuitively know that attitudes influence behavior. However, the relationship between attitudes and behavior is complex. There are three components to an attitude: affective (emotional - we either like something or we don't), behavioral (actions - we avoid an object or seek it out), and cognitive (thoughts). If I tell you that I do not like broccoli (negative affective component) and then I ask you to predict whether or not I will eat broccoli with my dinner tonight (behavioral component), you will correctly predict that I will not. However, you cannot predict with 100% confidence that I will never eat broccoli. Our behavior is influenced not only by our own characteristics (attitudes, personality, etc.) but also by characteristics of the situation we find ourselves in. If I had not had anything to eat in the past six days and someone offered me a plate of broccoli do you think I would eat it? Of course! We become much less particular when we are starving. If I am starving not only will my behavior change (I am now willing to eat broccoli.), but my thoughts (cognitive component of my attitude) will change as well. Instead of thinking about how I do not like the smell or taste of broccoli and how it gets stuck in my teeth, I am now going to think about how nutritious broccoli is.

As previously stated, people intuitively know that attitudes influence behavior. However, the relationship between attitudes and behavior is cyclical in nature - behaviors also influence attitudes. As behaviors change, attitudes change. Thus, if clients of consumer debt counseling agencies are successfully changing their behaviors, their attitudes about their financial status will change as well. Catherine Walker studied financial management, coping and debt in households under financial strain. The results of her study, published in the Journal of Economic Psychology, confirmed previous findings that psychological and behavioral variables have considerable impact on being in or keeping out of debt. So-hyun Joo, a faculty member at Texas Tech University, conducted research that indicated engaging in positive financial behaviors (such as paying bills on time), is positively related to financial satisfaction. Thus, once attitudes about financial behaviors change, actual behavior changes even further, completing the cycle.

Sociologists often quote the Thomas Theorem: "Things perceived to be real are real in their consequences." This means that our actions are based on what we think reality is - a perception that may or may not be correct. For example, once I was in a large mall department store shopping with a friend when suddenly we heard a woman yelling, "Help me! Help me! Please, somebody help me!" My friend and I were just inside the mall entrance to the store and the woman's screams were coming from outside the store, in a large corridor of the mall. The urgency in the woman's voice led my friend and me to believe that this was an emergency situation so we rushed out into the mall to lend assistance. After entering the corridor we could see the screaming woman. She was obviously distressed and there was a man pulling on her right arm trying to force her to go in the direction of the department store. We were continuing to move toward the screaming woman when another woman grabbed her by the left arm. When the screaming woman protested this treatment, the woman holding her left arm retorted, "We would not be treating you this way if you had not stolen from our store." My friend and I stopped dead in our tracks. This woman was not being abducted, she was a shoplifter! Our initial impression of the situation was incorrect. However, that was irrelevant when it came to our behavior. We acted in accordance with our perception of reality. Once that perception changed, our behavior changed.

Recall that Xiao found that a person's self-evaluation of financial behaviors actually contributes to financial behaviors. When clients seek help from debt counseling services, the counselors will attempt to get the clients to make immediate changes in their financial behaviors. Once clients change their behaviors, their perceptions of themselves and their financial situation begin to change. They begin to perceive themselves as financially responsible people. This perception influences behavior in the cyclical fashion discussed earlier because of the labeling effect. Once we attach a label to someone, or when people attach labels to themselves, the label becomes a part of the person's self-concept. Once the label becomes part of their self-concept, they behave in such a way as to live up to (or down to) the label. For example, some children receive messages (directly or indirectly) from their parents that they are stupid and incompetent. These labels become part of self-concept ("I am stupid and incompetent.") which in turn, influences expectations of self ("I will never amount to anything."). These expectations influence behaviors. Such children, as they grow older, are less likely to go to college ("I'm just not college material.") and less likely to eventually have successful careers. Thus, when clients of debt counseling services begin to see themselves as fiscally responsible, they will try to live up to the label they have applied to themselves and act in a fiscally responsible way.

When assessing the effectiveness of debt counseling services, we need to examine both objective and subjective measures. In a recent study on the determinants of money management behavior published in the Journal of Applied Social Psychology, Blair Kidwell, from the Department of Marketing at Virginia Polytechnic Institute and State University, found that attitude, affect, perceived ability, and past experience all influenced money-management behavior (i.e., maintaining a budget). Thus, a comprehensive measurement is needed to accurately assess the effectiveness of a debt counseling program. As previously stated, we can compare clients' current overall debt and spending behaviors with the amount of debt and spending behaviors they had when they first came for counseling. This will give us an objective measure. But how do we obtain a subjective measure?

Very carefully.

When conducting survey research, question design is crucial. Each survey item or question is a mini-research instrument in and of itself. One word in a question can mean the difference between data that is extremely valuable to an organization and data that is completely useless. A study conducted by psychologist Elizabeth Loftus dramatically illustrates how one word in a question can influence responses. In this experiment, research participants viewed a film of an automobile accident and then answered questions about events occurring in the film. One key question had to do with the rate of speed the cars were traveling at when the accident occurred. This question was worded five different ways. Some participants were asked, "About how fast were the cars going when they contacted each other?" Other participants were asked the same question except the words bumped, collided with, hit, or smashed into were used in place of the word contacted. Which wording do you think resulted in the highest estimates of speed? If you guessed "smashed into" you are correct. The reason has to do with the visual images these terms evoke. If we hear words like "contacted" or "bumped," we picture a fender-bender - an accident in which the vehicles sustain little or no damage. We know that such an accident only occurs when vehicles are traveling at a low rate of speed. The word "smashed" however, evokes an image of cars with a great deal of damage - cars that have probably been totaled. We know that damage this extensive results from a higher rate of speed, thus the higher estimates. Loftus also found that the way the question was worded influenced memory of the accident one week later. In a follow-up study one week after viewing the accident, research participants were asked, "Did you see any broken glass?" Those participants who read the word "smashed" were more likely to say "yes" to the question even though broken glass was not present in the film.

We can deduce from Loftus' study that survey research design is a delicate procedure. Utilizing a survey research firm staffed with organizational psychologists is one way to ensure that your survey instrument will accurately assess the attitudes and behaviors of your customers or employees. Organizational psychology is a specialty area within the broader field of psychology. During doctoral-level training, organizational psychologists learn how to design effective survey research instruments and accurately analyze data.

The National Business Research Institute, Inc. (NBRI) is a firm that specializes in survey research. Their organizational psychologists recently helped a debt counseling agency uncover the attitudes influencing their clients' behaviors. Realizing the importance of customers' perceptions to debt management success, this debt counseling agency wanted to know their clients' perceptions of their present financial situation as well as predictions about their future financial standing. NBRI was able to discover that 73% of this agency's customers felt they were better off financially at the time of the survey than they were one year prior to the survey. They also learned that 83% of the customers believed that in one year from the time of the survey, they would be better off financially (compared to their financial status at the time of the survey). NBRI also asked customers about their beliefs regarding business conditions in the country as a whole for the next 12 months. Only 14% of those surveyed believed we will have bad financial times. Customers were also asked about their beliefs regarding economic times for the country as a whole for the next five years. NBRI found that 60% of customers believe we will have continuous economic good times.

The overall perceptions of the customers in this survey were positive. Most customers perceived their own financial situation as improving and they had a positive view of economic conditions in the country as a whole. These positive attitudes indicate that this debt counseling agency has been successful in changing the behaviors of its customers. Now the agency has both objective and subjective measures of its effectiveness in meeting its mission.