The calm before the storm – 600,000 more Germans are threatened with over-indebtedness

The number of over-indebted private individuals in Germany is lower than ever before. The credit agency Creditreform reports 5.88 million cases in its current debtor atlas. The numbers have fallen for the fourth year in a row, this time by 4.4 percent or the equivalent of 274,000 people affected.

The over-indebtedness rate, i.e. the proportion of over-indebted people in relation to all adults in the country, falls to 8.48 percent and is also at an all-time low since records began in 2004.

Nevertheless, study author Patrik-Ludwig Hantzsch makes a worried face. "Unfortunately, the good numbers are deceptive," says the head of economic research at Creditreform. "We fear a trend reversal in the coming months."

Because Hantzsch sees a "threatening mixed situation" with the persistently high inflation and particularly high price jumps in energy and food, i.e. in exactly those areas that every household urgently needs. Added to this is mobility, which has also become much more expensive.

At the same time, the reserves saved during the Corona crisis have already been largely exhausted, as experts say. "Therefore, next year we will very likely measure increases in over-indebtedness figures again - and to a large extent," predicts Hantzsch, referring to calculations of the so-called Microm over-indebtedness typology, a new analysis model from Creditreform.

According to this, almost 20 percent of German households are currently at risk of not being able to pay the bills for utility services such as electricity, water, gas and heat immediately. This affects around 7.8 million households and consequently almost 16 million people, calculates Michael Goy-Yun, the managing director of Microm.

"The energy price shock is becoming too much of a financial burden for many." By way of comparison: before the start of the Ukraine war and the resulting jumps in energy prices, according to the Federal Statistical Office, 3.2 percent of households did not have enough money to heat their homes adequately . And according to Eurostat, 3.7 percent of households had arrears on utility bills.

Economic researcher Hanztsch also sees a surging wave. "The true burden of the energy crisis has not yet fully reached consumers," says the expert. “That is why the consequences of over-indebtedness have not yet been acutely felt. This will happen with a time lag in the coming months – and with a long-term effect.” Hantzsch sees low earners, who cannot put much aside even in normal times, at particular risk.

Creditreform is already seeing the first signs. The Corona period has so far been characterized by a reduction in over-indebtedness “at a drastic pace”, as the debtor atlas states. The reasons for this were the immense state support and aid programs with which politicians wanted to stabilize the economy and thus protect companies and consumers from the feared insolvency.

In addition, there are consumption options, for example on vacation, in gastronomy or in other leisure activities - and at the same time a fundamental cautious approach to spending among many consumers, which has led to a sharp increase in the savings rate and savings, which were often also used to reduce debt.

"Recently, however, this decline in over-indebted people has slowed noticeably," reports Hantzsch. And now comes the expected back payment shock for electricity and gas. "It can lead many consumers into lasting payment difficulties, sometimes even directly into over-indebtedness."

After all, Creditreform considers 600,000 new cases in the coming months to be “not unrealistic”. And there is a risk of energy poverty not only in the lower income groups. For the middle classes, too, the risk has increased significantly in view of the impact of the additional payment shock and the difficult to calculate duration of the inflationary tendencies.

According to the German Economic Institute (IW), the proportion of consumers in Germany who can save regularly has fallen from 70 percent in 2020 to just 50 percent now.

"Even the middle of society is coming under increasing pressure," says an IW report from September. "Precarious households are faced with existential questions, while in middle-class milieus the self-image of a secure future is faltering."

The federal government has announced explicit aid such as the electricity and gas price brake. However, Creditreform doubts whether the aid and support programs will be sufficient to limit the impact of energy price-related income losses.

And the IW also sees the need to make households aware of the importance of saving energy. "The general price level will remain high and possibly continue to rise," says the debtor atlas. "The signs remain stormy."

Especially since there are other risks of over-indebtedness. As a result, numerous banks and savings banks in Germany have started to raise interest rates for overdrafts and overdrafts significantly. Consumer advocates expect that many people will get into financial difficulties as a result.

At the same time, consumers have taken out more installment loans again as part of a Corona catch-up consumption: around seven million new installment loan agreements were concluded in 2021, which is five percent more than in the previous year and means the first increase after four years with declining numbers.

The younger target groups, who like to use so-called "buy now, pay later" offers, which are mainly offered by online retailers, were particularly active. The payments due will then be deferred and/or spread over several installments.

"It is obvious that these supposedly practical payment solutions for young people can quickly develop into an over-indebtedness trap," says Creditreform.

In principle, however, the issue of over-indebtedness tends to affect older generations. The average age of those affected is currently 46.45 years. Most cases affect men: in 2022 there were 3.59 million, compared to 2.3 million cases in women.

The proportion of women has been increasing for several years, as the debtor atlas shows. Another trend that has been going on for a long time is the poorer development of over-indebtedness among the older population groups.

Expert Hantzsch speaks of a double trend towards poverty in old age and over-indebtedness in old age. It can be observed that people of retirement age have to continue working, mostly in the context of atypical or marginal employment, in order to obtain the missing means to secure their livelihood.

As has been the case for many years, the reasons for slipping into acute financial difficulties are primarily six triggers, the so-called "Big Six", as it is called in the industry: unemployment, illness/addiction/accident, uneconomical household management, separation/divorce/death, one failed self-employment and long-term low income.

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