Countries where personal debt is an epidemic: Australia & Switzerland ranking high

As the global economy gathered pace and made a remarkable comeback, many families in the developed world are scrambling with personal debt. It doesn’t take much to become a debt slave today and a great percentage of people across the globe become indebted with loans from even before they begin to earn their first money. Student loans are, according to Forbes, the second highest consumer debt category in the U.S. today, where 45 million people have a collective student loan debt of $1.5 trillion.  In 2018, American household debt reached its highest point yet at $13.21 trillion. Some argue that even though it seems like a lot of money, when shared out to a population of just over 300 million it isn’t.  But Canada, Australia, Switzerland, the Netherlands and several more advanced economies also face personal debt issues, too much for people to handle.

Australia is a country where personal debt has become a problem more recently than in other countries. Now, companies like Debtco have move in to provide much-needed debt negotiation services to help bring hardship under control. Roland Bleyer, the CEO of Debco said that “In Australia, people were always very loyal to their banks and not used to personal debt traps that are more common in other countries. However recent problems with the housing market and other economic factors have tempted a lot of people to live beyond their means at a time when they should have been a little more prudent. We can however minimize the impact on households through expert debt negotiation – as we’ve already done successfully for many Australians”. He previously commented on credit cards and Australian consumers. 

What saves the average Australian and Swiss citizen, is off course the fact that the GDP per capita is rather high and wages are much better than in many other parts of the world.

Did anyone learn anything from the credit crisis?

It seems like no …

A decade ago everyone was talking about the credit crisis and how cheap money had contributed toward it.  American households saw their savings levels plunge and their debt declined. Now that it has reached a record high again economists say that the composition of their debt has changed, and people have become better at managing their debts, perhaps the long period of low interest rates has helped. However, many feel that consumers have not learnt any lessons about the real dangers of lending from the crisis and many households are actually struggling to repay their debts.  Economists are starting to use the term “debt slaves” as they see another cycle of increased borrowing and a decrease in savings, all within a system that encourages people to continue borrowing to in order to spend on consumer goods.

Which countries have the biggest number of debt slaves for 2019?

In the last two years, U.S. households have managed to slip to 11th place from 10th, slightly improving their position. According to the figures released by Trading Economics, it’s not surprising that the countries with the most debt slaves all have strong economies and low borrowing rates.

How is household debt measured?

Household debt consists of loans that have been taken to finance various living expenses. The primary debt for U.S. households is home mortgages, followed by student loans, credit cards and loans for motor vehicles.  Household indebtedness ratio is measured by household outstanding debt divided by the net disposable income. However, global rankings of household debt are worked out by comparing it to the size of the economy as measured by GDP and for the U.S. it’s at 75.9%, quite deflated and conservative compared to over 90% a decade ago.

Canada continues to remain in 5th position with 101. 30% household debt, leaving the country somewhat exposed to the volatility that the trade war between the U.S. and China brings. Increased inflation may lead to a rise in interest rates, which obviously would have a negative effect on the households and their debt.

Third place goes to the Danes who have managed to drop one slot from second. Their household debt has decreased by over 8% and is now at 115.10%.  Danish debt may be high but is concentrated within households with higher incomes. Their well-developed financial system allows them to buy homes at low interest rates but they also have a high retirement income which makes them feel secure even though they have such a high place on the list.

Australia is proving to be a country with an ever-growing number of debt slaves. They have now climbed to second place with a debt that reaches a whopping 119.4%.  Many feel that since 60% of this debt is owed for property, falling house prices after their recent housing bubble may pose a problem. However, economists predict that the money owed is secured and that households are coping well.

Which country is first?

Taking first place is Switzerland and the Swiss, unlike most of the others at the top of the list, are still adding points to their percentage. They are now sitting at 129.5%, half a point up from last year. The very low interest rates implemented by the Swiss National Bank have created the nation with the most debt slaves. Shielded from the real costs of borrowing, they are spending freely, something that may boomerang in the future.

Other debt slaves at the top

As the Dutch economy continues to grow, government debt is falling, but household debt ratio continues to grow and has increased by almost 1% since the previous year; it now sits at 102.9%.

Norway continues to be in Canada’s shadow and remains in 6th place with a debt level of 100%, this is double what it was almost 20 years ago. Scandinavian countries are proving to be big spenders, in keeping with their high level of life quality.

Surprise, surprise, New Zealand is number seven on the list and these levels are terrifying the best of them. At the last count they reached a debt level of 94.4 % and the heart of the problem lies with their increased consumer spending. It appears that it’s easy for them to add anything to their home mortgage because of the affordable rates. The true cost of this is that they may never be able to pay off their housing loans.

South Korea has fallen to 8th place. They have tried to curb their spending spree that ensued after they were hit by the Global and Asian Financial Crises, and have managed to reach 92.10% of household debt to GDP.

Ninth place goes to the Swedes who up until the late 1990s had a household debt level that was well below 50%. Since then their debt chart shows a steady rise to their current 88.40%.

Final place in the top 10 is the UK with a household debt which has dropped slightly to 86.8%. In the UK mortgages and credit card are where the biggest debt is, and the 2018 increase in interest rates may be the reason that they have dropped one place, hopefully turning them into savers rather than shoppers. Perhaps the insecurities of BREXIT are also a contributing factor.

One might ask how will debt slaves ever cope if there is a change in the policies of the central banks in these countries that have encouraged household debt? The consequences of the Global Financial crisis literally rocked the boat with some countries literally tipping off. Notably, Greece is only starting to recover now after a deep crisis which lasted for close to 10 years, and without even having high these numbers in household debt. Spain and Portugal managed to recover faster, while Italy is still trying to keep her balancing act together. If interest rates rise or inflation sets in the very institutions that encouraged the spending sprees are likely to crumble under the weight of their losses.