Financial Shame Spirals: How Shame Intensifies Financial Hardship

In brief

Financial trouble causes shame, and shame in turn makes financial trouble worse. Six studies, including bank account histories and twin comparisons, show that shame leads people to withdraw from their finances, which produces the very decisions that deepen hardship. Guilt does not have the same effect, and a brief intervention that affirms people’s own acts of kindness weakens the cycle.

Abstract

Financial hardship is an established source of shame. This research explores whether shame is also a driver and exacerbator of financial hardship. Six experimental, archival, and correlational studies (N = 9,110)—including data from customer bank account histories and several longitudinal surveys that allow for participant fixed effects and identical twin comparisons—provide evidence for a vicious cycle between shame and financial hardship: Shame induces financial withdrawal, which increases the probability of counterproductive financial decisions that only deepen one's financial hardship. Consistent with this model, shame was a stronger driver of financial hardship than the related emotion of guilt because shame increases withdrawal behaviors more than guilt. We also found that a theoretically motivated intervention—affirming acts of kindness—can break this cycle by reducing the link between financial shame and financial disengagement. This research suggests that shame helps set a poverty trap by creating a self-reinforcing cycle of financial hardship.

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Published version (DOI) · More on money and wellbeing