Monkey Brain Doesn’t Want to Pay Loans Back

Lauryn Hill introducing Chris Rock

Where’s my loan?

“You loan your friend money. You see them again, they don’t say nothin’ ’bout the money. ‘Hi, how ya doin’? How’s ya mama doing?’ Man, how’s my money doin’?”
–Chris Rock

When I ran a software development company, we had quite a rapid spurt of growth. We had to take on a lot of new people in a short amount of time, and in order to pay our vendors, I took out a business line of credit from Bank of America (let’s not kid ourselves…while the name was a “business line of credit,” it was a personal line of credit). Naturally, as the Fates would have it, just as we thought that we were on our way to becoming the Next Big Thing, our customer lost their contract with the government, and poof! We were almost back to where we started, and, to add to our pleasure, we still had this line of credit hanging over our heads.

Even though I never gave it any really serious consideration, since we still had enough in receivables to service it, I did think about what it would mean to just default on the loan.

Boy, talk about creating a storm in my head. Monkey Brain was all for this one.

MONKEY BRAIN: “DON’T PAY LOAN. BANK STUPID. MORE MONEY FOR US TO BUY BANANAS AND TOYS.”

ME: “Well, I agree about the bank being stupid, but…”

Fortunately, the worst case scenario never came to fruition, but it was certainly something that Monkey Brain liked to dwell on when he would keep me up late at night during the rocky times in our company’s history.

Similarly, I appeared to tap into a deep-seated “ugh” feeling with many readers when I wrote an article for ReadyForZero about loaning money to friends and family. Several of the commenters expressed regret or remorse about doing it, even if they wound up getting paid back. I understand. Heck, even as a kid, if I had to borrow a dollar from a friend, I felt guilty about it, and I usually felt resentful about loaning a friend a dollar when it wasn’t paid back.

The story that most interested me, though, was the one that Twitter user “Sapphire” told me. Sapphire loaned money to a family member and ensured that all the Is were dotted and Ts were crossed by having a promissory note. Sapphire said that the relationship was pretty weak with this family member and that there was pressure from the family to make the loan. I’m confident that Sapphire had many burbling in the stomach moments from the time the loan started until it was paid off.

Does Monkey Brain treat loans from friends and family differently than he treats loans from big, impersonal banks?


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Research from Old Dominion’s Michael Seiler and Texas Tech’s Eric Walden suggest that there is a difference in how Monkey Brain interprets loans from those for whom we feel affinity and from those whom we view as distant and impersonal. Seiler and Walden performed a series of experiments using functional magnetic resonance imaging (fMRIs) to measure how the brain reacted in a set of scenarios where the participants thought about strategic foreclosures on home mortgages. A strategic foreclosure is one where you have the ability to pay the mortgage, but you choose to walk away from the mortgage rather than continuing to pay on it. The experiment did not address recourse and non-recourse loans (where the lender could come after your other assets), which could have affected Monkey Brain’s calculations, but the results, nonetheless, are very instructive.

It turns out that there are a lot of portions of the brain playing together when it comes to the decision on whether or not to pay back a loan. Here are a few:

  • The pre-motor cortex. This is the part of the brain which is responsible for future planning.
  • The inferior frontal gyrus. This is the part of the brain that inhibits our initial emotional reactions (the ones that Monkey Brain throws up) and allows us to make more rational decisions.
  • The right insular cortex. This is the part of the brain that causes us to feel disgust, particularly when we’re going against what we perceive is a social norm.
  • The lingual gyrus and the inferior temporal gyrus. This tag team works together when we’re driven towards retribution and when we want to right inequalities.
  • The superior frontal gyrus. This is the executive section of the brain that makes decisions in times of uncertainty. It’s the one that gives you that snap “this is what we’re going to do” moment when you’re at the fork in life’s proverbial road.
  • The anterior cingulate gyrus. This is the section of the brain which is responsible for error checking. It’ll ask you “are you sure about that, boss?”
  • The left superior frontal gyrus. This is the area which is responsible for geospatial thinking. If you’ve ever used landmarks in navigation, then you’ve engaged this part of the brain.

Had enough mental anatomy to make your brain spin?

Let’s walk through, in plain English, the factors that go into consideration when you think about repaying your loans:

  • Proximity of the lender. It turns out that if it’s a local lender, you’re less likely to strategically default on the loan than if it’s a large, unknown bank, or an online lender. The reason is that you feel like you have a relationship with the bank and with the people there; it’s a part of your community, and you don’t want to hurt them or let them down. Although not explicitly called out in the study, it’s not a big leap to extrapolate that feeling of closeness extending to friends and family if you borrowed money from them.
  • Conservativeness of the lending and fair practices. If you perceive that you were swindled into taking a loan that you shouldn’t have taken, then you’re going to feel a strong sense of retribution. You’ll show those dirty, lyin’ scoundrels who’s boss by not paying them back! That’ll show ‘em! Alternatively, if you felt like the lender was fair in dealing with you, then you won’t feel that sense of retribution against the lender.
  • Concessions of the lender. If you asked for a loan modification, and the bank gave it to you, then you’ll behave differently towards the lender than if you didn’t receive the modification. According to the study, a big, impersonal bank who gives you a loan modification will cause you to treat that bank just like you’d treat a local bank. On the other hand, if the bank refuses to modify your loan, then you’ll be much more likely to seek retribution. When a bank modifies your loan, they (probably unknowingly) invoke the law of reciprocity, as described by Robert Cialdini, which means that you’re going to feel more psychologically compelled to return the favor. In this case, the best favor you can return to a bank is to pay off your loan.
  • The herd. If other people have not defaulted on their loans, then social pressure and norms will make you less likely to default on your loan. John Maynard Keynes showed that people get much less utility, or happiness, from being the only one who is right than they do disutility, or unhappiness, from being alone and being wrong. In other words, Monkey Brain doesn’t like to stick out like a sore thumb.

What are the lessons we can apply to our finances?

If you are a borrower…

  • Borrow from a local bank and get to know your banker. The more you feel like the person who was responsible for lending you money is someone you know, trust, and like, the more likely you are to feel strong feelings of guilt for not repaying the loan. This means that you’re unlikely to strategically default, and you’ll go to extra effort to find the money to repay the debt if times get tough.
  • Borrow from banks which have strict lending practices. The more fair and conservative the bank is in your mind, the less likely you’re going to feel that you were wronged by some shady misdealing on the bank’s behalf. Since you’ll feel like you were treated fairly, you won’t have the desire to seek retribution by defaulting on your loan.
  • Borrow from banks which have extremely low default rates. Monkey Brain likes to be one of the cool kids, and suffers from what is known as the in-group bias. When you’re part of what you perceive as the in-group, then you think that whatever the in-group does is right. In this case, if nobody is defaulting on their loans, then Monkey Brain is going to want to be part of that group, since he perceives them to be the cool kids. This means that he won’t want you to default on your loan.

If you are loaning money…

  • Get proper documentation and ensure the borrower understands and agrees with it. This will ensure that you have both legal protection and that the borrower buys in to the fairness of the process. By getting the borrower’s buy-in and understanding of the fairness of what you’re doing, then you’re decreasing the chances that the borrower will feel the need for retribution and won’t try to get even with you because you engaged in something which was unfair and causes the desire for creating equality in the borrower’s mind.
  • Get to know the borrower first. Of course, if you’re already a friend or a family member, such as in Sapphire’s case, you’ve already accomplished this step. The less that the borrower perceives you as distant or faceless, then the more likely the borrower is going to be to want to pay back the loan.
  • Reinforce how many people pay back their loans. Cite statistics if you can and try to tell personal stories. The more the borrower feels like the stories that you tell are about people who are just like the borrower, the more that the borrower will feel like people who pay back loans are in the borrower’s in-group. Since Monkey Brain likes to stay in the in-group, the borrower will be less likely to be an outcast by choosing to default.

Of course, none of this matters if you don’t borrow or don’t lend money, since, after all, there is no such thing as “good debt.” There are cases, though, particularly in Sapphire’s case, where familial norms made it very hard to say no, where you may find yourself in a lending situation, although in that case, if you can afford it, I recommend simply gifting the money to the relative in need.

In my case, we never got down to the difficult decision about strategic defaults, but if we had, I wouldn’t have done so, for many of the reasons that the study predicted – I liked our business banker, and I felt a strong moral obligation to pay off my debts.

What is your story? Do you feel these conflicts when you have debt? Tell us about it in the comments below!

About Jason Hull, CFP®

Jason Hull, CFP®, is the Chief Technology officer of myFinancialAnswers, an online comprehensive financial planning service.

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