SINGAPORE - Being chronically in debt hurts a low-income person's ability to think clearly and make good decisions.
This is the main finding of the first study on the impact of helping the poor to repay their debts in Singapore.
Dr Ong Qiyan, deputy director of the Social Service Research Centre at the National University of Singapore (NUS), said: "Debt burdens the poor psychologically, it creates severe anxiety and it harms their ability to make good decisions. This may be why we observe them making decisions that seem harmful for themselves."
She explained that having multiple debts weighs heavily on a person's mind.
This is especially so for the poor, as they live from hand to mouth trying to pay their bills so that their electricity supply or telephone line, for example, is not cut off due to arrears. They constantly struggle to keep from sinking deeper into debt as it snowballs.
"This saps their mental energy, leaving them with less remaining brain power to stay focused, resist temptations and think clearly when they have to make important decisions," she said.
"If we are worrying about managing debt and calculating what we can afford this month and what we have to give up, we have less brain power for our job, for improving ourselves or to help our children with their studies."
Dr Ong is one of three authors of the study. The other two are Associate Professor Walter Theseira of the School of Business at the Singapore University of Social Sciences and Associate Professor Irene Ng of the NUS Social Work department.
Their research was published in the Proceedings of the National Academy of Sciences on Monday (March 25).
The trio did the study to find out how chronic debt, which is common among the poor, keeps them trapped in poverty.
Many people assume that bad behaviour, such as laziness, a lack of self-control and irresponsibility, leads to poverty, Dr Ong said.
But emerging research has found that poverty reduces one's ability to make good decisions and that hinders them from succeeding in life.
She added: "Even if you have the same merit ability as others, you will face more difficulties in achieving your potential. Being poor may make you more likely to turn down a training opportunity, avoid acquiring new skills or try new innovations - all because there is too much on your mind."
The researchers collaborated with Methodist Welfare Services (MWS) for the study as the charity started its Getting Out Of Debt (Good) programme in 2015 to celebrate Singapore's 50th birthday.
The Good programme, which ran from January to August 2015, paid off each eligible family's debts of up to $5,000.
The researchers surveyed 196 people on the Good programme for their study. The respondents belong to the bottom 10 per cent of households by income and their average monthly household income was $1,788.
Most of them have debts, often for housing, telephone and utility bills, amounting to three or four months of their salaries on average.
To measure decision-making capabilities, the respondents are asked questions that measure their preferences in making decisions involving risk and patience that are widely used in economics and psychology research, Dr Ong said.
The study comes at a time when the widening income inequality and declining social mobility have dominated the national discourse in the past year and the Government has signalled its commitment to tackling these issues.
The researchers noted that while much help is given to the poor, the aid schemes demand that the poor must exhaust their finances first or show proof that they are really in financial trouble before they can receive help.
But the team pointed out that it is more fruitful to extend aid to the poor at an earlier stage so they do not fall into chronic debt, which affects their ability to make good decisions and keeps them trapped in poverty.
Dr Ong explained: "If we spend the money earlier, their ability to make good decisions will still be relatively intact and the same amount of money might allow them to get out of trouble for good."
For single mother Fatimah Asmandi, 45, debt sapped the life out of her.
She has four children, aged between seven and 16, and is divorced from her husband, who is in jail for drug offences.
A few years ago, she borrowed $3,000 from a friend to help her former husband pay his lawyer's fee.
The friend charged her interest and the debt snowballed to about $5,000. On top of that, she had utilities, telephone and housing arrears of close to $1,000. She was then working part-time as a librarian and earned about $600 a month.
"I was so stressed, as I was also going through a divorce and I had to take care of my children," she said.
"I had a lot on my mind, I was very anxious and I couldn't find a way out of debt."
Thankfully, she received help from the MWS' Good programme, which paid off her housing, utilities and telephone arrears of close to $1,000.
She also found a better-paying job where she earned $1,200 a month before overtime claims at Changi Airport, helping passengers in wheelchairs get around.
Today, life is better and she has $5,000 saved up. That was made possible through the MWS Family Development programme, which is a debt clearance and savings matching scheme.
For every dollar she put into her savings, the charity matches it with $2.
Ms Fatimah said: "Once I saw my debts being cleared, I became more relaxed. Now I can laugh. I can also think better of what to do for my future. Without the MWS help, I would be stuck in debt forever."