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Insufficient and biased Data on Consumer Debt in Europe - the Example of Germany.

A cross national comparision of data on consumer indebtedness is less easy than one can assume. The European Consumer Credit Research Institute (ECRI) a research institution between lobbying and research financed by major banks provides the only annual statistics on houshehold borrowing and consumer credit (see Since its basis are figures provided by banks these data are insufficient. The European Central Bank should as soon as possible provide independent research on these questions. We know form these and other scattered information that the highest personal debts in Europe are in the UK while Germany the Netherlands and Scandinavia come next while France seems to be less affected. Such a monopoly on consumer credit data by the bank controlled institutions covering also other issues like default rates and consumer information has significant effects on consumer credit policies and credit legislation in Europe. Similar monopolies have been developed by Purdue University in the USA and the Personal Finance Research Centre in Bristol in the UK. Independent consumer credit research has to start anew after even the Financial Services Authority in the UK admitted that its empirical basis has not been without doubt in the past. When we do not know how different EU states are affected by consumer debt we cannot use the benefits of a multinational system which offers the opportunity to evaluate different strategies to cope with the modern evil of overindebtedness.
Some theoretical insights have to be taken into account.

Mortgage Loans and Consumer Debts

First mortgage loans and consumer credit have to be kept separate. Although there is a general legal tendency in some countries like the USA and Germany to apply the notion "consumer credit" to both forms of credit assuming that they need similar levels of protection a meaningful definition for social research on debt and households has to separate them carefully from each other.

Consumer credit is credit whose vaule is eaten up by the consumer over time and has therefore to be repaid out of labour income. It consists out of "pre-paid" earnings. It is therefore different from an investment credit in which the loan is repaid out of the value of the items which have been financed through this credit.

This is the case for most mortgage loans. They are invested into real estate either for its acquisition or repair. thus they do not represent a new consumer "debt" since they materialize the value of the homes in a liquid form. In a balance sheet most of these investments would reveal that after taking up a mortgage loan the family is wealthier than before since the real value of the home stands against the debt burden in money. (What is true for the principal is not true for the interest. The interest paid for a mortgage loans represents the "rent" paid for "using" homes for living in it. This value is also "consumed" and has similar to the rent in a tenancy relation be paid out of own earnings. True statistics should therefore add only the annual interest of mortgage loans to the burden of consumer debt or the annual rent paid for a flat.)

But this is only true for such countries in continental Europe (Germany, Benelux, France) where nearly all mortgage loans represent at most the true value of the financed real estate.

In the UK and Ireland second mortgages or reverse mortgages represent hidden consumer credit for immediate consumption. They do not create additional wealth but consumer these values. The borrowers "eat up their homes" inherited from their ancestors as David Caplovitz put it for America.

But there is another argument why mortgage loans in some countries have to be added to the debt burden. In the US and the UK but also in Spain house prices have soared to dimensions which are above the price which can be reached in cases of default. ("crash value" compared to "assumed "equity") In such cases the true debt burden is the difference between the real value of the home and the outstanding value of the loan.

No data are available for this until now. iff has collected part of this information in a report to the EU Commission and Reverse Mortgages in the EU. (Equity Release Schemes in the European Union. Clerc-Renaud, Sebastien; Pérez-Carillo. Elena; Tiffe, Achim; Reifner, Udo. Social Finance No 16 BoD: Norderstedt 2010, 660 p)

Consumer Credit (in Germany)

If we focus on Consumer Credit only it is not all easier to estimate the true burden consumers face in different European countries through credit which is extended purely for consumption purposes.

First educational loans as well as start-up loans for which overdraft, credit card loans and installment loans are often used have investment functions. The loans materialize in machinery and facilities to use once own labour force for earnings (start-up and SME loans), the promise an increase in future earnings (educational loans) or they allow consumers to increase their earnings when making homework more efficient (household appliances) or bringing workplaces into reach (cars etc)

Second those countries like Germany, BENELUX, France and Italy where credit is primarily bank credit have a rather reliable statistic using the official bank statistiscs while for example in the UK most true consumer loans seem to be provided by non-banks where no reliable statistics are available. If like ECRI provides it only bank data are used the debtload of the UK, Ireland, the US as well as most Eastern European states are highly underestimated.

This can be illustrated by the situation in Germany.

The Bundesbank provides monthly reports on Consumer Credit.
( p 33*)

For September 2010 the following figures are provided (in Billion €)

Mortgage Loans
Bank Credit to non-independent households (Bio €)

all                              1,020.8
mortgages               792.9
consumer credit      228.0
instalement loans     154.0
overdraft                        14.7

How much is owed by each household? If you want to distribute it to all households you may divide it by 41 mio households.

But it makes more sense to attribute the debt burden of consumer credit (228 bio €) only to those 40% which are assumed to have consumer debt or are at least know for their negative savings rate. In this case your household indebtedness index has to be mutliplied by 2.5.

But there are other sources.

The German Office of Statistics provides an annual survey on about 39,000 representatively selected households. This survey last edition for 2008 (Statistische Bundesamt Geld- und Immobilienvermögen sowie Schulden privater Haushalte - Fachserie 15 Heft 2 - 2008 gives representative data at,property=file.pdf:

7.655 out of 39,077 interrogated households reported to have consuemr credit debt. The data are not truly reliable.

Another source could be the annual report iff Hamburg provides on the data gathered from 12,000 overindebted households who have been interrogated by debt advice counsellors in Germany who use the respecitive debt advice software of iff (CAWIN). Since the debt advisor are trained peronell and the information has to be correct since it provides the basis for the demand for discharge one can assume that they represent true values which is also underlined by it stability in all four reproats which have been provided up to now.

According to the latest report which is not yet available at the average debt load of overindebted consumer households lay at 30,977 €. 60% of this debt

While 16.013 € were bank loans most other debt stemmed from unpaid bills, tax and social welfare claims and debt collection agencies who may have held claims derived from bank loans.

Household Credit in Germany - A Summary

To summon up the household debt for Germany the following would have to be accomplished

  • Bank loans (instalment, overdraft , credit card)

    • minus loans for education and start-ups

  • Accrued annual interest for mortgage loans
  • Accrued annual rent paid by tenants
  • Second Mortgages
  • Mortgage debt minus true value of existing equity
  • Leasing and hire purchase debt derived from non-banks
  • Non-bank consumer credit
  • repayable public subsidies or loans (BAFÖG-loans)

The resulting debt has to be attributed to between 20 and 40% of all households. It would probably amount to 30.000 €.

If the same data would be available for all states the true dimension of consumer indebtedness in different countries could be compared.

ID: 47543
Author(s): Udo Reifner
Publication date: 21/07/11

Created: 21/07/11. Last changed: 21/07/11.
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