SINGAPORE (June 28): Cutting chronic debt can help reduce stress and help improve decision-making processes, according to a study.
Comparing the mental state of nearly 200 individuals, the study found that the percentage of people exhibiting generalised anxiety disorder fell from 78% to 53% after they received debt relief in a programme by the Methodist Welfare Services (MWS).
The negative effects of chronic debt on a person’s cognitive functioning are “large” — equivalent to one day of sleep deprivation. This results in slower reaction time and higher likelihood of making errors.
The research was conducted by Ong Qiyan, deputy director of research at the Social Service Research Centre at the National University of Singapore; economist Walter Theseira from the Singapore University of Social Sciences; and Irene Ng, director of the Social Service Research Centre at NUS.
“We found that a lot of the relief is related to how many debt accounts you can clear, and not so much related to the amounts. That’s useful because it suggests there are some policy changes that could achieve positive impact,” Theseira says.
In 2015, the MWS programme helped 619 low-income families clear $1.6 million in chronic debt so they could have a clean slate and start saving for their families’ futures.
The families received an average of $2,584 in debt relief; funds were disbursed according to the size of their debts, with a cap of $5,000.
The study’s participants had varying amounts of debt held under varying numbers of debt accounts.
But what the research found was that clearing one debt account improves cognitive functioning by about one-quarter of a standard deviation. It also reduces the likelihood of exhibiting anxiety by 11%.
Read more about why you should reduce chronic debt in our story on The Edge Singapore (Issue 888, week of July 1), available at newsstands now.
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