Keeping Up or Falling Behind? Personal debt

Examining the role of social comparison and income inequality across Europe

Dr Julia Gumy
University of Bristol
Dr Leen Vandecasteele
University of Tübingen

The Research Idea

This project examines the role of inequality for personal debt uptake in Europe. Up until the global economic crisis personal debt levels have soared in most Western countries. Similarly, these countries have experienced increases in income inequality (Giesecke & Verwiebe, 2009; Machin, 2003; OECD, 2008; Smeeding, 2005). It is now well documented that income inequality hinders economic growth (OECD, 2014), negatively affects health and accentuates social disadvantage (Wilkinson and Pickett, 2009). We argue that income inequality is also a driver of debt accumulation.

Some US studies have shown that income inequality and debt are related (Iacoviello, 2007; Christen and Morgan, 2005). It is found by these studies that income inequality promotes debt accumulation as individuals may want to keep up with the consumption patterns of higher income groups. There is yet little understanding on the mechanisms behind this relationship. Do individuals accumulate debt because they compare themselves economically to higher income groups or do individuals accumulate debt because they are economically lagging behind?

This project is innovative because we:

  1. employ micro-level sociological and social psychology theories of social comparison and relative deprivation to examine the mechanisms behind debt uptake
  2. we consequently add the role of the macro-level by examining these mechanisms across societies with different levels of inequality and social protection

The interdisciplinary and international nature of the study contributes to add a new perspective to a topic that has traditionally pertained to the economics domain, and so it also complements existing theories on indebtedness.


The dominant influence of economics on the study of household finances has often led to consider debt as a function of individual resources and spending patterns. Individuals lacking enough income to support their spending patterns incur debts (Ando and Modigliani’s 1963). Lack of income is therefore found to be a strong predictor of debt. The economic theory pays attention to individuals’ circumstances (micro factors), but little attention is paid to (1) peer group effects on the uptake of debt (2) the role of the national policy and inequality context. In the social sciences, Ford (1988) also found that poverty and affluence are the two paths into debt. However, Ford linked debt to the achievement or improvement of living standards. Debt accumulation and desired living standards should therefore be analysed from a societal context.

We will use the literature on poverty, inequality and social comparison to understand the social meaning of debt and link individuals’ debt patterns to the relative economic position of the individual in society. Although this literature has rarely explored the question of debt, we understand that debt may be used by individuals as a compensatory mechanism to achieve a desired status (Bourdieu, 1979; Christen & Morgan, 2005; Plagnol, 2011), material aspirations (Easterlin, 1980), identity (Featherstone, 2002), or to avoid social exclusion (Mack & Lansley, 1985). Our project aims at bridging the economic and social sciences literature and fills a theoretical gap by embedding the individual into the social structure of society.

The Focus

Most Western countries are currently being confronted with increased levels of indebtedness and over-indebtedness, putting many households at risk of poverty. Extant literature has emphasised individual responsibility and personal inadequacy for debt levels (Wright Mills 1959), thus disregarding the role of the social surrounding. This conception of indebtedness stigmatises further the debtor and promotes social and financial exclusion. By linking the concept of inequality to indebtedness we aim at understanding the extent to which indebtedness is the result of individual responsibility. We aim at exploring whether indebtedness is related to the social structure of society and, ultimately, to policies that accentuate disparities between different groups in society. Economic policies of redistribution and welfare may therefore bear, in part, responsibility for levels of debt and problematic debt.

The analysis of the interplay between individuals and the social context constitutes a fresh approach to a problem that has become endemic in most Western societies. The focus on the individual has not led to any improvement in levels of over-indebtedness. This is also clear in the consistent lack of legislation across Europe dealing with over-indebtedness, the financial marginalisation of the most vulnerable groups in society and the slow development of preventative policies.

Theoretical Novelty

This project aims at contributing to change the traditional and utilitarian conceptualisation of debt, which sees debt merely as a financial instrument to smooth consumption patterns. Following Zelizer’s (1989) analysis of the social meaning of money, we aim at exploring the social meaning of debt by understanding the role of debt within the social structure of society. By linking indebtedness to income inequality and to social comparison, we aim to conceptualise debt as an indicator of individuals’ aspirations and society’s evolving living standards. Indeed, the use of debt in some cases can say more about the discrepancy between how individuals would like to live – i.e. their economic aspirations – and their current economic resources. At the same time, an increasing number of individuals cannot afford current lifestyles and need to rely on debt.

From a social policy point of view, the normalisation of debt within household finances raises also the question to what extent welfare states have started to allow the use of debt among its citizens as an alternative means of income support. Income inequality is high in countries where there is low social expenditure and market provision of welfare (Wilkinson and Pickett, 2009). These countries also show high levels of indebtedness and over-indebtedness. Debt may therefore not only be an equaliser for the individual but may be encouraged by societies where individual responsibility and market provision of welfare is more pronounced.


This study will combine expertise and theoretical insights from Sociology and Social Policy to address a topic that has traditionally been explored mostly by economists. This will bring a new perspective to the question of indebtedness, will help assess its societal implications and help devise policy solutions. We will draw on sociological and social psychological theories of inequality and poverty as well as economic theories of consumption to devise our research design for empirical investigation. The comparative nature of the study will allow us to assess the impact of the institutional level factors on individual behaviour, in particular, factors related to social redistribution of welfare.

The study will be based on the statistical analysis of the EU-SILC survey, which collects longitudinal and cross-national information on individual and household socio-economic characteristics. We will combine this survey with aggregate data on income inequality and social expenditure drawn from Eurostat and the OECD to perform multilevel random effects regressions on individuals within 25 European countries. This multilevel framework allows us to examine sociological mechanisms on the micro-level and combine them with the role of the policy and inequality context on the macro-level.

At a micro level, we measure individuals’ economic position by the household’s income rank and deprivation score and changes within these scales. Peer group effects are measured by comparing the individual’s income to the average income of a reference group. At a macro level, the Gini coefficient and the 90:50 and 50:10 income ratios are used to measure income inequality.

Work Plan

The project will start in March 2015 for duration of 12 months. The funding will be necessary to organise two meetings in Bristol and one Tubingen of 5 days each where the PIs will work towards advancing the research project. In the meetings the PIs will devote time to discuss the main findings, advance, harmonise and consolidate results.

Our research is policy oriented. This means that it will be of interest to academics, policymakers and members of civil society. We will have five main outputs:

  1. Three conference papers for the EU-SILC user conference 2015 in Germany, the ESPAnet conference 2015 in Denmark and the Annual RC19 Conference ‘Frontiers of Inequality, Social Policy, and Welfare’ at the University of Bath.
  2. Two journal articles submitted to prestigious peer review journals in both Sociology and Social Policy based on the objectives of the research project.
  3. Press releases for each article that is accepted.
  4. Lectures and seminars on inequality to staff members and postgraduate students at each institution
  5. A one-day workshop on the ‘Consequences of inequality’ at the University of Bristol. The aim of the workshop is to bring together scholars working on topics of inequality, and engage in academic discussion and debate. The workshop will be divided in two sections. In the first section, we will provide lectures on topics related to inequality. In the second section, the participants will be invited to present their research. A keynote speaker will be invited to deliver a seminar on inequality.


The potential societal impact of this research is non-negligible. Arguably some of the most pressing issues affecting people’s socio-economic position have been the recent financial crisis and the increasing trends in inequality. Understanding how inequality is linked to processes of social comparison and debt uptake for different groups will allow policy makers to target interventions to avoid over-indebtedness and its problematic repercussions for people’s lives. More information is needed not only about which people are at risk of over-indebtedness, but mainly about the underlying mechanisms driving debt uptake.

Specifically for our research agenda, in the long term, we would like to expand the second objective of our study to explore further social comparison processes at peer, neighbourhood and country level. It has been argued that small group comparisons are more relevant for people’s perception of deprivation. Senik (2009) shows that local comparisons are more powerful than ranking on the social ladder. People seem to be more likely to compare themselves to others who are closer in distance (Wolbring et al., 2013) and with whom they interact directly (Clark & Senik, 2010). For this we plan to use the British Household Panel Survey (BHPS)/Understanding Society and the German Socio-Economic Panel (GSOEP). This would allow us not only to compare two countries but also examine regional inequalities within each country.