Personal debt might be genetic

Many Canadians are hopelessly financially hog-tied by debt. Accumulating evidence shows Canadians are especially vulnerable to myopic budgeting and overspending, which generate potentially crushing debt loads. Although several factors can shape spending habits, research shows there is a significant genetic component.

A substantial proportion of Canadians might be genetically predisposed to be in debt.

According to the Vanier Institute of Family Studies, the average Canadian debt load is a whopping $96,000. The Canadian debt-to-income ratio is at its highest level in over a decade and overdue credit-card payments have doubled in recent years.

Recently, Statistics Canada confirmed that, on average, Canadians have the highest debt load of any nation in the 20-member Organization for Economic Cooperation and Development. At present, the debt load of individual Canadians averages some 20 per cent of all they own, totalling $1.48 trillion nationwide, up 6.9 per cent from a year ago.

In September 2009, the Canadian Payroll Association warned two-thirds of Canadians aged 18 to 34 "face financial chaos'' if they fail to receive a paycheque for merely one week. Personal bankruptcies are increasing at a rate of about 20 per cent annually.

Economists confirm people go into debt by making purchases on credit; 40 per cent of household expenses go towards paying off mortgages.

Several socioeconomic factors contribute towards a debt load. Economic think-tanks agree governments want people to spend their money and they encourage spending by cutting interest rates, which makes saving money comparatively less attractive.

A recent Bank of England statement confirmed "low interest rates are in place to encourage spending.'' The Bank of Canada's current policy is to keep interest rates very low and Scotia Capital recently reported the current monetary policy is unlikely to change at least until into 2011.

U.S. Sen. Robert Corkey recently suggested such monetary policies "encourage people to go into debt,'' adding they are good for business.

Some other, and perhaps surreptitious, factors encourage people to spend more of their money. According to Stanford DeVoe at the Rotman School of Management, fast-food and its symbols have a sort of subliminal effect on many people, making them speed up their decisions "for short-term gains.''

Marketing devices act as "psychological primers,'' reminding people to hurry ahead with financial decisions without thoroughly thinking them through.

Kathleen Vohs at the University of Minnesota has found loud background sounds, including music, at shopping malls and in stores make shoppers buy more items by "weakening their self-control.''

"Noise overload makes people move into a less deliberate mode of decision-making; they are more easily fooled by discounts,'' she recently reported.

Songs with empathetic lyrics, played in restaurants, significantly boost tips paid to servers, a recent study showed.

But, perhaps eclipsing all these factors is the influence genes have on purchasing habits. According to Jan-Emmanuel de Neve and James Fowler at the University of California and London School of Economics, a 30-base pair gene, monoamine oxidase A (MAOA) impacts on neurotransmitters in the brain that regulate impulsiveness and risk-taking.

"About half the population has MAOA alleles, which raises the average likelihood of credit-card debt by up to 16 per cent,'' the researchers reported. "Genes play a role in risk-taking, investment decisions.''

The MAOA gene might, at least in part, explain Charles Sprenger's finding that 50 per cent of all credit-card users carry unpaid credit-card debt, the so-called 'revolvers.' The University of California researcher reported "revolvers exhibit payment behaviour that differs from those who repay their entire balance every month.''

The research suggests MAOA-types are significantly more likely to go into credit-card debt. At present, the current average household credit-card debt is about $16,000 and the 60-day delinquency rate is increasing.

The MAOA gene specifically "encodes monoamine oxidase, an enzyme that degrades neurotransmitters such as serotonin, dopamine and adrenaline,'' de Neve explained. Impaired cognitive ability can result, with an impact on spending habits and budgeting.

The researchers concluded, somewhat ominously, that "genes may be used to identify consumers who are likely to be profitable clients.''

Robert Alison is a Victoria-based wildlife biologist and writer with a PhD in zoology.

Republished from the Winnipeg Free Press print edition October 26, 2010 A10