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How debt can affect our decision making

A MARTINEZ, HOST:

Netflix's hit series "Squid Game" has a diabolical premise. Cash-strapped players compete in deadly children's games for money, a lot of it. Stacey Vanek Smith and Darren Woods with NPR's podcast The Indicator look at what it reveals about debt and decision-making.

STACEY VANEK SMITH, BYLINE: OK. So Darian, "Squid Game" economics.

DARIAN WOODS, BYLINE: Yes.

VANEK SMITH: In the show, you've got hundreds and hundreds of people competing in these really weird death matches for money. And that was my first question about the show. I thought, is this realistic? So I called up John Beshears. He's an economist at Harvard Business School who specializes in financial choices and decision-making.

JOHN BESHEARS: Being heavily indebted does change your cognitive capacity. What I mean is there's just something weighing on your mind.

VANEK SMITH: So John points to a study that was released last month. And it looked at hundreds of low-income workers in India. The workers were employed by a factory that made disposable plates. And most of the workers were living in a pretty hand-to-mouth situation, said they didn't even have enough to cover just day-to-day expenses between paychecks.

WOODS: And as part of the experiment, researchers arranged for a little subset of these factory workers to get paid more frequently. So it's the same amount of money. But they've got two paychecks in two weeks instead of just one. The results were striking. The group that got the money sooner was able to cover a lot of expenses more quickly and started to get ahead paying off their loans.

VANEK SMITH: And here is one of the really interesting parts of the study. So the people who were paid more frequently were not only less stressed and less anxious overall, but they became better workers. Their productivity increased. They also made fewer mistakes. And their work quality was higher.

WOODS: John says that this illustrates how much debt affects our brains and our actions and our abilities to focus and function in the moment.

BESHEARS: Having this part of your brain occupied by this debt looming over your head - I think there's good reason to say that over-indebtedness is dehumanizing to the borrower.

VANEK SMITH: I do have a silver lining, Darian...

WOODS: OK. OK.

VANEK SMITH: ...Because I did not want to leave you with a very bleak picture, which is that, actually, debt is less of a problem in our economy right now than it was before the pandemic.

WOODS: And I've seen this a bit in the data, too. Like, when we got the stimulus payments and enhanced unemployment benefits, some of that money went down to paying back credit card debt and other loans. And so that's been really good for those people, to have that opportunity to pay back debt. Yeah. We have seen savings go up, which is a really interesting feature of our kind of pandemic era economy.

VANEK SMITH: And it has not had the effect on the U.S. economy that spending is down. In fact, spending on consumer goods is way up.

WOODS: But here's the problem. Some of that debt's just transferred to government. And the government has taken on a lot of debt over the last 18 months. And so...

VANEK SMITH: Oh.

WOODS: (Laughter).

VANEK SMITH: So maybe the next "Squid Game" is just going to be governments.

WOODS: I'd like to see Boris Johnson and Biden play a little game of hopscotch together to see if they can work it out.

Darian Woods

VANEK SMITH: Stacey Vanek Smith, NPR News.

(SOUNDBITE OF MOKHOV'S "SPRING EVENING") Transcript provided by NPR, Copyright NPR.