Financial shame spirals: how shame intensifies financial hardship
ORGANIZATIONAL BEHAVIOR AND HUMAN DECISION PROCESSES, 2021Financial 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.