Life in Perpetual Overdraft: Are Poor Households Doomed to Always be in Debt?

In the last decade, the phenomena of using excessive credit has developed fast. Long-lasting household debt can jeopardize the personal well-being of every member of the household. Most existing research focuses on economic situations to explain the reason that households frequently use overdraft services. The aim of this study is to broaden the scope of the research of the overdraft phenomenon by building a theoretical model which integrates economic factors together with personal psychological traits and external social influence. Qualitative research was used that included in-depth interviews of 29 urban salaried employees. Results showed that economic factors were a significant contributor in explaining overdraft use. Yet social influencing factors, especially the past financial behaviour of the parents and the children’s social demands, were found to have a large effect on the tendency to use overdraft services regularly. Personality traits, mainly locus of control and self-control, added enlightenment to understanding this phenomenon. Through identification of these factors, appropriate preventive steps can be taken by institutions and individuals to reduce the use of surplus credit in ways that lead to harm to the household.