Squared Away Blog

July 12, 2012

How Can Debt Enhance Self-Esteem?

The media went crazy last month over research determining that debt – whether college loans or credit cards – is a major source of self-esteem for young adults. 

Judging by the tone of these articles, the reporters were so flabbergasted that they didn’t think to ask the logical follow-up question: Why?  Credit cards aren’t inherently bad, though they can get people who abuse them in trouble.  But equating self-esteem with debt seems to turn the notion of financial judgment on its head.

So Squared Away consulted therapist Dave Jetson and financial planner Rick Kahler, both of Rapids City, South Dakota.  They often work together with clients on their financial issues but offered different explanations for this puzzling phenomenon. 

Because debt is increasingly required to get a college education, Kahler said it may benefit from the glow of what an education represents.  Debt has become a mark of being “smart enough to get through college.”

Jetson sees a dramatic cultural shift that is influencing today’s young adults.  This shift coincides with shrinking economic opportunity for many college graduates.

The link between self esteem and debt partly reflect our “very materialistic society,” said Jetson.  Taking on debt and feeling good about it is “a way of hiding deeper issues: if I buy something I feel better.  It’s like a shopping addiction.  It’s not about buying the item.  It’s about the emotional connectedness behind it.” 

Ohio State University sociologist Rachel Dwyer’s research not only found that young adults, ages 18 to 34, derive self-esteem from being in debt but that the feeling is stronger the more debt the person has.  This finding is prevalent for young adults whose parents are in the lowest income groups and the middle class and is “blunted” for the upper class. 

Psychologists say self esteem is first bestowed upon us by our parents, who praise us for things we do right.  Some parents batter their children’s self esteem through constant criticism of their mistakes.  [Self esteem is different than self-worth, which is feeling good about who we are.]  Dwyer defines self esteem as a feeling of “mastery,” which she measured by asking questions that revealed each survey respondent’s sense of control over their lives.      

Money adds a layer of complexity to the psychology of self esteem.  Jetson, a licensed mental health professional, said he has learned from working with young people in debt that their parents have often taught them, by example, the emotional benefits of acquiring things.  Yet their children do not learn how difficult money is to earn or how hard credit cards are to pay off, “because mom and dad are always there to bail them out.”  In other cases, parents don’t talk with their children about household finances.  Young people run up their debts before they understand its true impact.

“[Young adults] say, ‘I’ve got a credit card and I can max this out.’  …  They don’t understand the value of money so they spend it.” he said.  

Kahler, a co-founder of the Financial Therapy Association, says each individual’s financial attitudes and behavior is determined by his or her “money script,” which is learn from parents or the culture.  When parents use a credit card or buy a house with no money down, he said, it influences their child “that this is normal and how you afford things.”

However, two children can react very differently.  Consider a set of twins who grow up together, he said.  One child watching profligate parents who stress over their credit cards may vow never to repeat their mistakes; the other may see only the good side of debt: vacations, new cars, a better lifestyle.

Kahler also said debt may boost self esteem, because acquiring student debt has almost become tantamount to getting the education itself – college is now so unaffordable for many parents and students that the education may be impossible without the debt.

Kahler predicted that this myth is unraveling, as more students are slammed by reality when they graduate and try to pay it back.  “People are starting to equate the time and cost of getting a degree with the salary and earnings potential” of their career choices, he said.

Indeed, Dwyer’s research found that the sheen of self esteem wears off by the time young adults reach age 28.  When she analyzed a subset of adults 28 and older, she found “significant negative effects of debt” reduce feelings of mastery.  Large amounts of debt become “more burdensome over time.” 

Click here to read Dwyer’s paper.