Debt Attitude and Debt Accumulation among Rural Poor Households in a Developing Region: A Q-squared Approach

The relationship between debt attitudes and debt behaviours is a subject of interest for both economists and psychologists alike. Analysing quantitative and qualitative data collected from Kerala, India, this paper contributes to this discourse by examining the extent to which debt attitudes shape the debt behaviours of rural poor households in developing countries; a demographic often overlooked in the current academic discourse surrounding indebtedness. The study observes that the debt attitudes within this demographic are not unidimensional and can be more accurately characterised in terms of general and specific attitudes to debt. Based on a survey encompassing 720 rural poor households, our quantitative analysis indicates that general debt attitudes significantly influence the likelihood of the household having outstanding loans. However, neither general nor specific debt attitudes do not significantly predict the actual amount of debt accumulated by the household. To explore the disconnect between debt attitudes and the magnitude of debt accumulation, qualitative insights derived from in-depth interviews with 21 surveyed households were analysed. Our qualitative exploration uncovers a spectrum of attitudes towards borrowing held by this group, spanning from a strong aversion to favourable inclinations. The analysis identified three plausible explanations for the observed attitude-behaviour disconnect; specifically the inescapable inevitability of borrowing, the dynamic nature of debt attitudes, and debt recycling. From a policy standpoint, our findings suggest that while initiatives targeting debt attitudes could discourage this group’s initial dependency on loans, their effectiveness in curbing 2 subsequent debt accumulation may be limited due to the multifaceted challenges faced by this demographic in their daily lives. Therefore, tackling the issue of excessive household debt among rural poor households in developing countries requires the concurrent formulation of comprehensive policies that address underlying structural issues.