Table 10: IV Probit Results - Marginal Impact
Dependent Variable Impulsive
Instrumenting for:
Struggle to Keep Up 0.18
(Std. Error) (0.1989)
6 Conclusions
The number of people in financial difficulties is increasing and looks set to rise further in the
future. This is worrying, not only because of the implications for the individuals involved,
but also because these difficulties can result in enormous costs for the entire financial system.
In this context it is vital that we understand exactly why people get into financial trouble,
so that appropriate means of preventing people from getting into difficulties in the future
can be devised.
Using new nationally representative data from the Financial Capability Survey for the
UK and Ireland, I have shown that while demographic and economic variables are im-
portant determinants of who gets into financial difficulties, behavioural factors such as an
individual’s capacity for self-control, planning, and patience, also matter. This is an im-
portant result that has in general been neglected in most of the recent literature on the
causes of financial distress. It is important because it shows that policies to prevent people
getting into financial difficulties should not focus solely on improving financial literacy and
education levels, which also matter. Instead, these efforts should be combined with tools to
improve individuals’ organisational skills and devices to, as much as is possible, minimise
the impact of behavioural and psychological traits on financial outcomes.
There is a broad literature on measures that can be used to attempt to change or
overcome behaviour. Much of this literature suggests that de-biasing techniques which
encourage critical thinking, and commitment devices can be used for this purpose, (Shefrin
and Thaler (1988), Thaler and Benartzi (2004), Choi el at (2005), for example). However,
the evidence on the effect of such efforts in changing the impact of behaviour on financial
outcomes is thin. Examining this latter topic will be the next task for research in this area.
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