Alexander Clark
Head of International APAC
People of all kinds in Thailand are struggling with debt: from 2010 to 2022, Thai household debt-to-GDP ratio rose from 60% to 87%, amounting to a staggering 14.9 trillion Baht. From young adults landing their first jobs to mature workers over 60 years old, large swathes of the population are in debt.
Household debt problems in Thailand differ from those in other countries in several aspects.
Thailand has become an upper middle-income country and around 95% of the population have an account at financial institutions and access to digital services for transactions. While household debt in other countries is mostly due to housing loans, in Thailand credit cards and personal loans make up almost one-third of the total household debt.Worse, these represent almost two-thirds of all non-performing loans (loans that are repaid late or not in full) in the country.
To tackle this problem, the Bank of Thailand enacted the Responsible Lending regulation in January 2024, which aims to govern the information that lenders provide to potential borrowers. Supported by the UK government’s Foreign, Commonwealth and Development Office, BIT partnered with the Bank of Thailand to explore how behavioural insights could support this regulation.
Testing the presentation of loan information
We conducted an online experiment involving more than 1,000 Thai citizens to determine whether changing the way information was presented in a loan product sheet (see Figure 1 and 2 below) could improve consumer understanding and decision-making about loan repayment.
After being randomly assigned to see one of the two versions of the product loan sheets, participants were presented with a scenario in which they were considering taking up a loan, and were asked to choose any repayment period on a monthly sliding scale that ranged between 24 to 48 months.
Although participants could choose any figure within that range, we also presented them with three ‘defaults’: a minimum, middle and maximum term showing the repayment period, the monthly instalments and in the treatment group, the total interest the loan would incur. The minimum term (with the smallest interest payment) was also deliberately highlighted.
Participants were not presented with information on the monthly repayment amount, or the total interest incurred, on loans of other lengths.
Loan choices
We discovered that many participants understand that the shorter loan term also means the cheaper one, as indicated by the high number of people choosing the 24-month repayment period, no matter which table they were shown (see Figure 3 below).
Although participants chose relatively similar loan tenures regardless of which version of the loan product sheet they saw, we did see evidence that the loan sheet design matters.
While we had highlighted the shortest loan option in the hopes that it would anchor participants to the shorter amount, we also found that people were much more likely to anchor themselves to any presented option, rather than choose a more bespoke arrangement.
Even with a full range of 25 possible repayment options the vast majority of participants gravitated toward the options highlighted in the loan product sheet: 24, 36, or 48 months (see above). Rather than treating these three options as mere guidance, uncertain consumers might possibly interpret them as the only available choices – Kahneman’s “what you see is all there is”.
In this experiment, we see that those who picked the middle option had lower comprehension scores and higher financial stress levels than others. We think we may be seeing middle option bias, where people tend to choose the middle option if they have high uncertainty – an issue we have seen in our previous research on financial decision-making in Malaysia.
Financial literacy
We also tested participants’ understanding of the financial characteristics of the agreements they were choosing to enter into.
We found that participants struggled to answer simple questions about the loan, though this seemed to vary between the two groups.
The treatment sample was less accurate when it came to interest rates and monthly repayment amounts, yet were better able to provide the total interest to be paid.
We theorised that every additional piece of information ‘cannibalises’ attention paid to other pieces of information. This matters because both our loan sheets were extremely simplified – market practice is often to provide much more detail, and so good faith efforts to properly inform customers may actually be making decision-making harder rather than easier.
Impact
Our findings may be only descriptive, but they nevertheless have important implications for the design of loan product sheets.
In particular, it’s important for lending regulations to be specific about even seemingly-small details such as the placement and formatting of loan comparison tables (for example, putting them on the front page and taking care over which example repayment periods are displayed) and that information should be worded succinctly.
Small tweaks like these can help people make decisions more clearly – as we have shown for financial regulation in other jurisdictions.
Financial inclusion – ensuring that everyone can access financial products and services – is an integral part of economic stability and growth. Understanding psychological and social factors can improve the design and delivery of these financial products for more equitable economic outcomes.
We’ve helped many governments and financial institutions around the world to empower underserved populations and promote better financial decision-making. If you’re interested in applying behavioural insights to your work, please get in touch with us.
This project was jointly conducted by the BIT and the Bank of Thailand , with support from the Foreign, Commonwealth and Development Office of the UK government.
