Two households can owe the exact same share of their monthly income to lenders, yet experience their finances in completely different ways. One family might manage its payments without much worry, while the other feels constantly stretched thin and begins cutting back on daily expenses.
A study published in the Journal of Behavioral and Experimental Finance examines how this psychological weight of debt compares to hard financial ratios when families try to pay for everyday needs. The research finds that feeling over-indebted is much more strongly linked to unmet household needs than the actual percentage of income going toward loan payments.
The gap between math and mindset
Borrowing money often helps families smooth out their spending over time, allowing them to buy homes, invest in education, or weather sudden emergencies like an illness or job loss. When debt obligations grow too large, that benefit can reverse, leaving less cash for daily life and triggering anxiety.
Economists and policymakers usually track this problem by looking at objective balance-sheet math, such as how much of a household’s income is eaten up by debt payments. Grzegorz Wałęga and Agnieszka Wałęga, researchers at the Krakow University of Economics in Poland, wanted to know how those standard financial ratios stack up against a borrower’s personal sense of financial strain.
They also wanted to see what happens to specific areas of a family budget when debt pressure mounts. Prior research has mostly looked at total household spending, leaving open questions about how borrowers in rapidly growing consumer credit markets, such as Central and Eastern Europe, trade off basic necessities against discretionary purchases.
Measuring debt and daily needs
To investigate, the researchers analyzed survey data collected in 2018 from 1,007 indebted households across Poland. Participants were reached through randomly generated mobile phone numbers, an approach that covered a broad cross-section of the country because more than 96% of Polish households own a mobile phone.
The authors measured over-indebtedness in two ways. For the objective measure, they flagged households spending more than 30% of their income on debt repayments, a common benchmark for heavy financial strain. For the subjective measure, they simply asked respondents whether they felt over-indebted.
Comparing those two yardsticks revealed a striking mismatch. While 16.7% of the surveyed households crossed the 30% repayment threshold and 17.4% said they felt over-indebted, the two groups often did not overlap. About 61% of the people who felt over-indebted were actually spending 30% or less of their income on loan payments, while roughly 59% of those paying more than 30% of their income did not view themselves as over-indebted.
Next, the researchers looked at how well these households could afford seven categories of expenses, rated on a four-point scale from “definitely not” to “definitely yes.” They grouped food, clothing, and utilities into essential needs, while placing home furnishings, leisure and recreation, transport and communication, and out-of-pocket healthcare into non-essential needs. Because Poland has a dominant public healthcare system, private medical spending is largely treated as a flexible expense.
In addition to analyzing each spending category on its own, the researchers combined the answers into overall scores ranging from 0 to 1 for essential needs, non-essential needs, and total needs. They then used statistical models to test how both types of debt burden related to those scores, while accounting for age, education, household size, city size, the number of loans, and whether the money was borrowed from a traditional bank.
What gets cut when debt feels heavy
Both objective and subjective debt burdens were associated with a lower ability to meet household needs, and families experiencing both at the same time fared the worst. On the 0-to-1 scale for overall need satisfaction, households with neither debt burden averaged a score of 0.74, compared to 0.63 for those above the 30% repayment threshold and 0.57 for those who felt over-indebted.
Across every spending category, the subjective feeling of being over-indebted showed a stronger link to financial hardship than the 30% income ratio. When the researchers included both measures in the same statistical model, the 30% repayment ratio lost its statistically significant link to struggles with food. For home furnishings and healthcare, it was not statistically significant even when tested on its own. Feeling over-indebted, by contrast, remained strongly tied to lower satisfaction in all seven areas, reducing the likelihood of easily affording transport and communication by nearly 20 percentage points and food or clothing by about 18 percentage points.
The data also showed a clear pattern in how families adjusted their budgets under pressure. Across the board, indebted households protected basic necessities like utilities and groceries while cutting back sharply on quality-of-life spending, particularly leisure and recreation. Among respondents who felt over-indebted, nearly 59% reported moderate or serious problems paying for leisure and recreation, while only about 8% reported similar trouble affording food and roughly 4% struggled to pay for utilities.
The researchers suggest that perceived debt burden acts as an amplifier of financial constraints. Even when a household’s balance sheet looks manageable on paper, anxiety and worry over repayments can narrow a person’s focus and prompt precautionary cutbacks in everyday spending.
The role of loan types and education
Looking beyond the size and feel of the debt, the analysis showed that borrowing conditions and household traits also play a role in how families weather financial strain. Households that borrowed exclusively from non-bank lenders reported significantly lower satisfaction of their non-essential and overall needs compared to those with traditional bank loans. The authors note that higher interest costs, extra fees, and weaker consumer protections in the non-bank lending sector may intensify repayment stress.
Demographic factors shifted the picture as well. Larger households reported a better ability to meet non-essential and overall needs than smaller ones, which the authors attribute to families sharing living costs and pooling resources under one roof, whereas older borrowers generally reported greater difficulty meeting their needs.
Education stood out as a notable buffer against debt stress. When the researchers tested how schooling interacted with debt perceptions, they found that having a university degree significantly weakened the negative link between feeling over-indebted and struggling to afford household needs. The authors suggest that higher financial literacy, better planning skills, and greater job stability help college-educated borrowers cope when debt feels overwhelming.
Implications and limitations
For policymakers and financial institutions, the findings indicate that relying solely on income-based debt ratios can miss many vulnerable families. The authors suggest that traditional debt-relief programs could be paired with tools that address the psychological side of borrowing, such as structured financial counseling and clearer repayment plans, alongside stricter oversight of high-cost non-bank lenders.
Still, the researchers point out several caveats when interpreting their work. Because the survey captured a single snapshot in time rather than tracking families over several years, the results show statistical associations rather than direct cause and effect. It is possible that struggling to pay for groceries or leisure makes people feel over-indebted, or that unmeasured traits like personal optimism and underlying health issues shape both how people view their debt and how they rate their living standards.
The findings are also tied to Poland’s specific economic and legal environment, including its public healthcare system and local credit regulations. Future studies that follow households over time and compare different countries will be needed to see how these behavioral patterns play out under different financial rules.
