Europeans in many member states are finding it hard to meet their monthly dues, resorting to personal debt as a short-term solution to their financial woes, writes Ali Burton.
According to financial writer Maya Goodfellow, in the UK, despite record employment levels, debt has reached an all-time high. The TUC reports that UK homes now own an average of £15,385 to credit card firms, banks and other lenders. The level of unsecured debt is now 30.4% of household incomes, way above the peak experienced in 2008, prior to the financial crisis. The Independent notes, moreover, that Britain owes a total of £72.5bn on credit cards, and every household has an unpaid credit card debt of approximately £2,688 – leading financial experts to state that families will soon be unable to withstand the burden of debt.
The UK is not Alone
In other countries, factors such as relaxed bank lending standards are also pushing up household debt. Last year, it was reported that Spanish banks had issued 15% more consumer credit than the previous year. These loans were taken to buy goods like cars, furniture, home equipment, and holidays, increasing Spanish household debt to €9.4 billion in June, 2018. The Bank of Spain stated, “Given the current low-rate environment, financial institutions could be looking for opportunities to increase profitability at the expense of incurring greater risk. As such, the evolution of this type of credit and its respective default risk will have to be closely monitored in the coming quarters.” In other countries, like Sweden, the situation is no different. The National reports that households are struggling to pay consumer loans in Sweden as well as in Norway, with Europe’s biggest debt collector, Intrum AB, stating, “We cannot rule out that the high household debt levels we see in Sweden and Norway are slowly starting to impact individual households, and that they, on the margin, are starting to be late with payments.”
What are the Reasons for Debt
As written by Maya Goodfellow, it is wrong to assume that Europeans are incurring debt because they don’t know how to manage their money or because they are purposely living above their means. Rather, deeper reasons for this phenomenon include public spending cuts, and years of wage stagnation. As stated by Britain’s TUC, many families are struggling more today than they were prior to the 2008 crisis.
The Effect of Public Cuts on Personal Debt
It is easy to see how cutting down on public services can lead to a greater reliance on credit. Europe is known for offering universal healthcare to its citizens. However, just last year, the newspapers warned of an NHS crisis, with hospitals wanting for space and patients not receiving the care they need in a timely fashion. Private spending on health has risen, with research by healthcare consultancy firm, LaingBuisson, showing that “There has been a clear rise in interest in private healthcare recently as more and more people are dissatisfied with higher waiting on the NHS and increased restrictions on NHS treatment.” Of course, health is just one need that families are finding themselves forced to spend more on. For some, reliance on credit can be the only way to put food on the table.
What is the Solution for Personal Debt?
Until wages rise and more funding is provided to public services, it is difficult to see average families finding a solution to ever-increasing debt. Debt consolidation, financial counselling and budgeting can all help to some extent, but if citizens are resorting to loans and credit despite sound financial management, then the answer is that their wages are simply insufficient. The only way for households to require less credit, is for governments to spend (and potentially borrow) more. Otherwise, too many banks and financial institutions could be left with unpaid loans.
Cutting on spending is vital when it comes to reducing a country’s deficit, but so long as the government continues to scrimp on essential services, individuals will be forced to borrow more. Boosting financial literacy can help in cases where the problem is due to financial mismanagement. Unfortunately, the rampant rise in personal debt in many European countries indicates that money management has little to do with the problem and that it is mainly about fulfilling necessities.
The Author, Ali Burton, is a free lance journalist and contributor to EU Political Report.