Awarded in 2009 to Duke University, this research project sought to help prevent borrowers from falling prey to the lure of entering debt consolidation type programs as a means to lower monthly payments in order to take on more debt. The research program consisted of three phases:
- Phase 1: Confirming the Phenomenon Exists
- Phase 2: Identifying Potential Messages to Counteract the "Boomerang"
- Phase 3: Field Study of Real Consumers
The principal investigators (Lisa E. Bolton, Pennsylvania State University; Paul N. Bloom, Duke University; and Joel B. Cohen, University of Florida) argue that debt consolidation loan marketing overemphasizes the short-term benefits and downplays the considerable downside of these loans. Two experiments demonstrate that a financial literacy intervention combining information about loans and lenders can help consumers understand and respond to debt consolidation loan marketing, whereas a basic financial numeracy intervention does not.
The laboratory studies performed in Phase II illustrated the importance of creating both lender and loan literacy for increasing the intentions of the consumer to manage their money wisely. In conjunction with Phase III, the research team created a nine-minute video that covers both of these topics: lender literacy and loan literacy. This video was then tested in a field study of real consumers to see how it affected their risk perception, intentions to manage money wisely, and self-reported behaviors. The video is included below and can continue to be used or downloaded for free as a resource in financial education curricula, providing detailed, yet clear, information on debt consolidation loans and how they can affect consumers’ money management and overall financial health. Along with this video, more resources on dealing with debt for adults can be found on our Financial Workshop Kits website.