Determining Causes And Effects

Determining Causes And Effects Draft Version

Determine a topic related to causes and effects, research credible sources, and write a 4-5 page paper that includes a clear thesis statement, description of major causes, secondary causes, contributing causes, and the effects on the economy and people. The paper should have an introduction, body, and conclusion, follow proper formatting (double-spaced, Times New Roman size 12, 1-inch margins), include a cover page with relevant information, and cite at least three credible sources following APA format. Focus your discussion on one of three scenarios: stress on college students, unemployment effects on individuals and families, or the consequences of not maintaining a personal budget.

Paper For Above instruction

Understanding the causes and effects associated with societal and individual issues is crucial for developing effective solutions and policies. In this paper, I will explore the causes and effects of not maintaining a personal budget, a scenario that has significant implications for both the economy and individuals. The rise in financial irresponsibility among consumers has led to widespread economic repercussions, impacting not only individual wellbeing but also the broader financial systems.

Introduction

Financial discipline plays a critical role in personal economic well-being and the stability of the economy. A personal budget helps individuals allocate their income efficiently to cover expenses, save for future needs, and avoid debt. Failure to maintain a personal budget is rooted in various causes and leads to significant consequences. This paper aims to examine the primary causes behind neglecting personal budgeting, secondary and contributing causes, and their effects on the economy and individuals.

Major Cause: Lack of Financial Education

The primary cause of not maintaining a personal budget is the widespread lack of financial literacy. Many consumers lack fundamental knowledge about managing money, understanding interest rates, credit scores, and the importance of savings. According to Lusardi and Mitchell (2014), financial literacy significantly influences individuals' financial behaviors, including budgeting. Without adequate education, individuals are more likely to overspend, incur debt, and neglect savings, thus failing to keep a proper budget.

Leading Second Cause: Psychological Factors

In addition to financial illiteracy, psychological factors such as impulsivity, lack of self-control, and emotional spending contribute substantially. Thaler and Sunstein (2008) highlight how behavioral biases affect financial decisions. Impulsivity, driven by emotional states like stress or peer pressure, often leads individuals to make unplanned expenditures and ignore budgeting practices. These psychological tendencies distort financial priorities and undermine disciplined money management.

Other Contributing Causes

• Economic Hardship: Sudden financial crises or unemployment can disrupt personal budgets, making it difficult to allocate resources effectively (Norvilitis et al., 2006).
• Poor Planning Skills: Many individuals lack the skills for effective financial planning, such as tracking expenses or forecasting future needs, which hampers consistent budgeting (Lusardi, 2019).

Effects on the Economy

1. Decreased Consumer Spending: When individuals fail to budget properly, their spending habits become erratic, leading to decreased consumer confidence and overall economic slowdown (Kumar & Mishra, 2020).
2. Increased Debt Levels: Poor budgeting often results in higher reliance on credit, leading to increased household debt, which can trigger financial crises and banking instability (Looney & Pomerantz, 2019).
3. Reduced Savings and Investments: Lack of savings due to poor budgeting diminishes capital available for investments, restraining economic growth and innovation (Friedman & Schwartz, 2014).

Effects on People

1. Financial Stress and Anxiety: Individuals who do not budget effectively often experience increased stress due to financial instability, affecting mental and physical health (Joo et al., 2014).
2. Lower Quality of Life: Poor financial management can lead to poverty, inability to afford essentials like healthcare or education, and overall diminished life satisfaction (Norvilitis et al., 2006).
3. Increased Risk of Bankruptcy: Without proper budgeting, many individuals are vulnerable to debts that they cannot repay, increasing the likelihood of personal bankruptcy (Lusardi, 2019).

In conclusion, neglecting personal budgeting is primarily caused by a lack of financial education and psychological biases, compounded by economic hardships and poor planning skills. These causes lead to significant effects on both the economy—through decreased spending, increased debt, and reduced investments—and on individuals, manifesting as financial stress, reduced life quality, and bankruptcy risk. Addressing these issues requires targeted financial education, behavioral interventions, and better financial planning support to empower individuals and stabilize the economy.

References

• Friedman, M., & Schwartz, A. J. (2014). A monetary history of the United States, 1867–1960. Princeton University Press.
• Joo, S. H., Grable, J. E., & Adams, G. (2014). The influence of financial stress, financial resources, financial literacy, and family support on financial behaviors. Journal of Family and Economic Issues, 35, 176-188.
• Kumar, R., & Mishra, A. K. (2020). Consumer confidence, spending, and economic recovery: Evidence from emerging markets. International Journal of Economics and Financial Issues, 10(3), 22-29.
• Looney, A., & Pomerantz, B. (2019). Household debt and financial stability. Federal Reserve Bank of St. Louis Review, 101(2), 119-136.
• Lusardi, A. (2019). Financial literacy and financial resilience: Evidence and implications. Journal of Pension Economics & Finance, 18(2), 139-149.
• Lusardi, A., & Mitchell, O. S. (2014). The importance of financial literacy and savings behavior. Journal of Economic Perspectives, 28(3), 107-132.
• Norvilitis, J. M., Mao, Y., & Zhang, J. (2006). Money attitudes and financial behavior of Chinese college students. Journal of Economic Psychology, 27(3), 371-387.
• Thaler, R. H., & Sunstein, C. R. (2008). Nudge: Improving decisions about health, wealth, and happiness. Yale University Press.