An employee walks with a customer in the used car sales area inside a Volkswagen showroom in Berlin. Germans, traditionally a nation of debt-averse savers, took out an average of €8,700 ($9,650) in loans last year — a rise of around 10% compared with 2013, according to Schufa, Germany’s main credit bureau.
Reuters/Berlin
While Chancellor Angela Merkel’s focus on careful spending as a cure for the eurozone’s debt problems has made her popular at home, German consumers are borrowing more to finance everything from furniture to cars.
Germans, traditionally a nation of debt-averse savers, took out an average of €8,700 ($9,650) in loans last year — a rise of around 10% compared with 2013, according to Schufa, Germany’s main credit bureau.
With borrowing expected rise again this year, that marks a significant shift in a country where the thrifty southwestern ‘Swabian housewife’ has been held up as a model and a strong dislike of borrowing is rooted in the language. ‘Schuld’, the word for debt, also means guilt.
During the eurozone crisis, Merkel and her government have extolled the virtues of budget discipline over loading up on debt to finance stimulus, with her Finance Minister Wolfgang Schaeuble currently playing hardball over Greece’s attempts to secure a third bailout in exchange for economic reforms.
That stance that has scored points with voters at home but raised hackles in other eurozone states, whose governments have throughout the crisis urged the citizens of Europe’s richest country to help kick-start the region’s recovery by spending more freely.
Emboldened by the strong jobs market, rising wages and a more robust economic backdrop, German consumers are starting to do just that by buying more on credit as rock-bottom interest rates make it cheaper to borrow and reduce the incentive to save.
“The economy is stable, steady incomes are giving people planning security and there are plenty of tempting offers at a time when people are very consumption-oriented and interest rates are low,” said Michael-Burkhard Piorkowsky, professor of household and consumption economics at the University of Bonn.
“All this means that taking on debt is in vogue.”
While the number of new loans dropped slightly last year, the average amount people borrowed rose. For the first time, new instalment loans worth more than €10,000 overtook those worth less than €1,000, Schufa data showed.
Germans still have far less outstanding consumer credit per head than peers in Norway, Denmark and the United Kingdom, but they have far more left to pay off than the Italians, Spanish and Portuguese, a study by French bank Credit Agricole found.
Hans-Werner Scherer, head of financial services firm EOS Group, said instalment loans, the overdraft facility on credit cards and current accounts, had become “socially acceptable”.
“Nowadays Germans differentiate between ‘good’ and ‘bad’ debt,” he said. “Taking out debt to pay for cosmetic surgery, new clothes or jewellery is still frowned upon but taking out a loan to buy a house or pay for health treatment is accepted.”
Germans are most likely to borrow money to pay for high-value items like property or cars but less keen on using credit for leisure activities like holidays and games consoles, Scherer said.
Market research group GfK’s consumer credit index expects consumers to take out even more debt this year, mainly to pay for renovations, furniture, kitchens and used cars.
Germans have a strong payment record, with 97.5% paying back their debt, according to Schufa. But some evidence suggests attitudes are changing among younger Germans.
An increasing number of the Federal Association of German Debt Collection Companies’ (BDIU) member firms are reporting that 18- to 24-year-olds are worse at paying bills than those above 25. Online retailers and mail-order firms are young Germans’ most common creditors.
“This trend is slowly gaining traction and it’s really bad when young people start out with a debt pile which builds up to the extent that they could get so overwhelmed they end up insolvent,” said BDIU head Wolfgang Spitz.
The 62-year-old said attitudes had changed since his childhood: “Back in the day ... you saved up money you got from your grandmother and others and at some point you could buy a bike but that’s no longer so common.”
If he had his way, schools would give lessons on dealing with money and debt and put piggy banks in classrooms.
