Even when they are positive, study results sometimes seem downright absurd. At first glance, the Debtors’ 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 they began to record 15 years ago.
Compared to 2020, 700,000 fewer private individuals were insolvent as of October 2021. The number of over-indebted people is falling for the third year in a row, apparently completely unaffected by the pandemic economic slump. Nevertheless, there are still six million (exactly 6.16 million) people in Germany who are currently unable to pay their bills and cannot service their loans.
Over-indebtedness is a time-lagged marker
The study directors warn against jumping to conclusions: “In view of the long-lasting corona situation, the positive numbers are a paradox of over-indebtedness,” says Patrik-Ludwig Hantzsch, head of economic research at Creditreform. However, the over-indebtedness rate is a long-term marker that only depicts economic crises with a time lag.
Nevertheless, government aid measures such as short-time work benefits and bridging aid for the self-employed have initially succeeded in securing livelihoods. In addition, the uncertainty among consumers in the pandemic has prompted them to spend their money more cautiously and take out fewer loans.
According to economic researcher Hantzsch, the lower level of over-indebtedness should not hide the fact that even a year and a half after the spread of the pandemic, many households are lacking money. “Currently, 32 percent or around 13.5 million households are still affected by losses in household net income”. The reasons given by 40 percent of those surveyed are that they are still on short-time work; 11 percent that they lost their job. That is at least five percentage points less than in October 2020.
But why are so many people in a rich country like Germany – every seventh consumer – over-indebted? For years, Creditreform has identified unemployment and strokes of fate such as illness, addiction or accidents and inefficient housekeeping as the three main causes. But since the financial crisis in 2008, one parameter has been closing in on the ranking. Compared to 2008, three times as many people now state that they cannot earn a living without debts because of “long-term low incomes”.
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, have continued to grow. In combination with higher housing and living costs, this means that many people are unable to build up reserves in order to cushion temporary income losses, such as during the Corona crisis.
At the moment this dangerous situation seems to be coming to a head, as heating costs, fuel prices and food prices continue to rise. The rents in metropolises are now so high that many people with low incomes only spend half of it on their homes. For those who are happy at the end of each month when the account is still covered, even 20 euros higher expenses can pull the account into the red in the long term.
The expanded low-wage sector is an example of how crises and subsequent political decisions determine the financial independence of private individuals in the long term. This year’s debt atlas also reminds us that old-age poverty is not a temporary phenomenon either. In the age group of 60 to 69 year olds, the overindebtedness rate was the only one to have increased. Although a slight decrease was measured for all other five age groups. Currently, 769,000 people in their sixties have so much debt that they will not be able to repay it in the long run.