Fear of repayment demands is causing people to forgo benefits and financial support, even when they are eligible. This was one of the finding of Olaf Simonse in his PhD research on financial stress and the non-use of social services. His proposal: 'Let the government take the initiative.'
'Policymakers often base financial policies on the assumption that people are like computers, always making the most rational decisions,' says Olaf Simonse. 'However, psychological research shows that context, emotions, and personality have a significant impact on financial decision-making.' Simonse, who spent many years as a civil servant at the Ministry of Finance, where he was head of the financial education platform Wijzer in geldzaken, adds, 'In my work, I always tried to base policies on scientific insights, but I noticed that this wasn't the norm. To bridge the gap between science and policy, I wanted to delve deeper into the context within which people make financial decisions. This led to a conversation with Professor Wilco van Dijk, an expert in economic psychology, who eventually asked, 'Why don't you do a PhD on this subject?' And so it happened.' On 11 September, Simonse will defend his thesis Financial Stress by Design.
An overview
Olaf Simonse graduated in econometrics from Tilburg University. He then spent 25 years working in the private sector and for the national government as a project and programme manager. In the last 15 years, his focus shifted to projects related to poverty, debt, and financial skills. In 2020, he started his PhD as an external candidate at the Institute of Psychology, and since 2022, he has been a researcher and advisor at the Knowledge Centre for Psychology and Economic Behaviour (KCPEG), where he provides various training sessions and workshops on behavioural insights for professionals. On 16 October, KCPEG will host an autumn symposium on livelihood (in)security.
Financial stress and mental health
People experience financial stress when they feel they don't have enough money and lack control over their finances. This stress can lead to cognitive issues, such as difficulty concentrating or planning, as well as physical symptoms like stomach aches. Simonse explains, 'Previous research has shown a strong link between financial stress and mental well-being, but proving that financial stress leads to poorer mental health remains challenging. It's not ethical to deliberately put people in financial distress to study this.' To better understand this dynamic, his colleagues at the Knowledge Centre distributed questionnaires to over a thousand Dutch households during the first half of the pandemic.
Beyond income
Participants were asked about their financial situation, including their income and debts, the extent of their financial worries, and their mental state. 'We found that over the course of that half-year, mental well-being remained relatively stable overall, but those experiencing significant financial stress also fared worse mentally.' Simonse emphasises that financial stress is influenced by more than just income. 'Other factors, such as how much debt someone has or how much savings they have in the bank, are also important. For example, people with lower incomes but a financial buffer experience less financial stress.'
Not using social services
People who cannot fully support themselves financially are entitled to social services such as benefits and welfare. 'These are meant to protect people from financial stress, but that only works if people actually use them.' This isn't happening optimally: 10 to 15 per cent of eligible Dutch citizens don't claim their benefits, and for welfare, this figure is as high as 35 per cent. Why? To investigate this, Simonse and his colleagues visited the Hague market and the centre of Eindhoven. 'We asked people if they ever struggled to make ends meet at the end of the month. We then invited them for a coffee in a café where they could talk about their financial situation in a relaxed setting. In that environment, people were surprisingly open.'
Fear of repayment demands
The interviews revealed a general lack of trust in the government, particularly the tax authorities. 'A significant reason why people were afraid to apply for benefits was the fear of repayment demands. Many had experienced a repayment demand in the past and had unpleasant memories of it. They said, "I don't need that benefit anymore." Other obstacles included administrative hassles, such as having to submit many forms to qualify for welfare, and feelings of shame. You don't just ask your neighbour: could you help me apply for welfare?' We also found that social support, such as a good family member or a professional who can assist, was beneficial.'
Initiative for the government
To ensure that people receive the financial support they need, Simonse argues that the government must adopt a less distrustful stance towards citizens. 'A bit of distrust is sometimes healthy, but we've gone too far. Moreover, this attitude also affects the public, who trust the government less and less.' A good starting point, he suggests, would be to make it less complicated to apply for support. 'How many proof documents do you really need to determine if someone is eligible for welfare? You could turn it around. The initiative to apply for benefits currently lies with the citizen, but the government could also calculate what someone is entitled to and deposit that amount into their account monthly. I realise this is complex to implement, but such a system would foster trust.'
