There is good and bad news when it comes to over-indebtedness among consumers in Germany. The good thing: purely statistically speaking, fewer people are over-indebted than a year ago. The number of citizens in debt fell by 233,000 cases to 5.65 million people, a decrease of four percent. This is shown by the figures from the Debtor Atlas 2023, which was published by the credit agency Creditreform. Overall, the debts of private individuals in Germany add up to an estimated 174 billion euros, which is 8 billion euros less than in 2022.
The bad news: Debt has increased among young people of all people. According to the data, consumers between the ages of 18 and 30 are the only group where more people were over-indebted than last year. While the debt ratio fell across the board in the other age groups, it rose by 3,000 cases among 18 to 30 year olds. Although this only corresponds to an increase of 0.4 percent, debts are often particularly significant for young people. They usually still have comparatively little money, but have to pay expensive overdraft interest if their bank account is overdrawn. According to the magazine “Finanztest”, overdraft interest has risen by an average of more than two percentage points to around 12 percent since the end of 2022.
Creditreform also cites the “Buy now, pay later” payment option as the reason for the increased indebtedness among young adults, i.e. the classic installment purchase, which has recently become particularly fashionable in e-commerce. Young people in particular are now using it. Because of high inflation and increased interest rates, many consumers have less money at their disposal, but at the same time they are increasingly in the mood to buy after the pandemic, according to the study authors. The demand for installment loans and “buy now, pay later” offers has therefore reached record levels in recent months. “The number of newly concluded installment loan agreements increased by around 30 percent last year alone, from 7 to 9.1 million,” says Creditreform.
According to the study, consumers primarily take out small loans: around 42 percent of all new installment loans are now loans under 1,000 euros. The number of these small loans rose from 2 to 3.8 million, an increase of 90 percent. “A large part of this increase is due to the increase in ‘buy now, pay later’ offers by payment service providers in online retail,” says Creditreform. They are aimed primarily at younger, internet-savvy and consumer-friendly target groups. The company refers to figures from the Federal Statistical Office, according to which “installment loans, at around 8,480 euros, are the largest single item in a list of the average amount of debt by type of creditor or debtor”.
According to Creditreform, the over-indebtedness situation of consumers has developed positively over the past three years. But even if the bottom line is that over-indebtedness will decline by 2023, the supposedly good values are deceptive, says Patrik-Ludwig Hantzsch, head of economic research at Creditreform. “Without special statistical effects, we are measuring an increase in over-indebtedness for the first time since 2019.” Hantzsch is alluding to a change in storage periods.
Schufa, the most important German credit agency for financial data, shortened the storage period for entries on completed personal insolvencies from three years to six months in the spring. Creditreform itself now only stores the data in its information database for half a year. The reason for this was an impending ruling by the European Court of Justice.
If this change is not taken into account, there will be around 17,000 more cases of over-indebtedness than in 2022, says Hantzsch. The over-indebtedness rate would therefore actually be 8.51 percent instead of 8.15 percent, slightly higher than the previous year. Creditreform defines the over-indebtedness rate as the proportion of over-indebted people in relation to all adults in Germany.
Note: This article first appeared on Capital.de.
