Debtors’ Atlas: Why Germany is caught in the “over-indebtedness paradox” – economics

Even when they are positive, the results of studies sometimes seem downright absurd. At first glance, the Debtor Atlas 2021 is definitely such a case. After almost two years of the Corona crisis, the economic research institute Creditreform has come to the conclusion that fewer people in Germany are over-indebted than they have been since their records began 15 years ago.

Compared to 2020, 700,000 fewer individuals were insolvent in October 2021. The number of over-indebted people has fallen for the third year in a row, apparently completely insensitive to the pandemic economic crisis. Nevertheless, there are still six million (exactly 6.16 million) people in Germany who are currently unable to pay their bills and cannot repay their loans.

Over-indebtedness is a marker shifted in time

Study makers warn of hasty conclusions: “Given the long duration of the corona situation, the positive numbers are a paradox of over-indebtedness,” said Patrik-Ludwig Hantzsch, head of economic research at Creditreform . However, the debt distress rate is a long-term marker that only depicts economic crises with a time lag.

However, government support measures such as short-time working allowances and bridging aids for the self-employed initially succeeded in securing livelihoods. In addition, consumers’ uncertainty about the pandemic has prompted them to spend their money more carefully and take out fewer loans.

According to economics researcher Hantzsch, the decline in the level of over-indebtedness should not mask the fact that even a year and a half after the spread of the pandemic, many households are running out of money. “Currently, 32%, or about 13.5 million households, are still affected by losses in net household income.” The reasons given by 40% of the people questioned are that they are still in partial unemployment; 11 percent they lost their jobs. That’s at least five percentage points lower than in October 2020.

But why are so many people in a wealthy country like Germany – one in seven consumers – over-indebted? For years, Creditreform has identified unemployment and twists and turns such as illness, drug addiction or accidents and inefficient housework as the top three causes. But since the financial crisis of 2008, one parameter is approaching the ranking. Compared to 2008, three times as many people today say that they cannot earn a living without taking on debt because of “long-term low income”.

In the 13 years since the financial crisis, the low-wage sector and precarious employment relationships, such as delivery services, gastronomy and the meat industry, continued to grow. Combined with higher housing and living costs, this means that many people cannot build up reserves to cushion temporary income losses, such as during the Corona crisis.

Right now, this dangerous constellation appears to be coming to a head, as heating costs, fuel prices and food prices continue to rise. Rents in metropolitan areas are now so high that many low-income people spend only half on their housing. For those who are happy at the end of each month when the account is still covered, even 20 euros in spending more can tip the account into the red in the long run.

The expansion of the low-wage sector is an example of how crises and the resulting political decisions determine the financial independence of individuals in the long run. This year’s Debt Atlas also reminds us that senior poverty is not a temporary phenomenon either. In the 60 to 69 age group, the over-indebtedness rate is the only one to increase, although a slight decrease was measured for the other five age groups. Currently, 769,000 people in their 60s have so much debt that they will not be able to pay it off in the long term.

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