Inflation and especially the rising prices of food and energy are causing more and more Dutch households to get into financial difficulties. If we reach a million households in problematic debt, it is ‘not a crazy estimate’, says economist Piet Rietman from ABN Amro.
“Before the current level of inflation, half a million Dutch households were already in such dire straits that they could no longer pay their fixed costs or necessary expenses, which is a lot more. Depending on inflation expectations – if we end up with a million Dutch households in problematic debt, it’s not a crazy estimate. ‘
News in the Netherlands: poverty
According to Rietman, we are dealing with a new phenomenon in the Netherlands. ‘We are not used to talking in the Dutch economy about people who cannot afford really basic needs.’ Rietman points out that economists also tend to translate a recession into human behavior in the form of cutting back on luxury goods or reducing savings – the use of savings to mitigate economic shocks. What economists generally do not take into account is that savings are now also being made by reducing the daily significant expenses.
In short, there is a previously unprecedented poverty trap for many Dutch households. However, these households can not be found in the debt consolidation statistics. In fact, those who follow the news will come to believe that the number of people in debt relief is declining.
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Debt consolidation distorts the picture
According to Rietman, that picture is not correct: ‘I think it’s a sad moment in the Dutch news cycle that debt restructuring is coming down. Once in a while, those numbers are published, and then you read headlines that the number of people in debt restructuring is declining. Then you think that things are going well, but what has happened is that in 2012 a policy change was initiated that the debt restructuring mainly went to municipalities. As a result, the number of people in legal debt relief is declining and we think the debt problem is not that bad. ‘
A million households that can not cope, for Rietman it is not only a social problem, but also a macroeconomic problem. ‘We are talking about a million households that consume in a completely different way than the other households’.
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According to Rietman, consumption levels in the Netherlands are coming under pressure. “If people lose savings, which middle and high incomes do, it is already difficult for economists to assess because savings and consumption are behavioral effects. We do not anticipate this until after the decimal point, but we still have a bit of an idea about it. But if a household loses savings instead of 100 euros, falls below 100 euros a month and as a result builds up debt with debt collection agencies, it does not land in the official statistics, but you put a mortgage on future expenses.
Rietman sees solutions on both the income side and the expense side. “Wages in the Netherlands must be higher. And I certainly think that the minimum wage, the national pension and social assistance could be raised to prevent people from getting into acute trouble at the lower end of the income scale. ‘
Buy on credit
But Rietman also sees many opportunities on the spending side. ‘You can see (…) that many people with middle incomes are tied to certain expenses, some households are not very agile, they can not change expenses from one day to the next’. Rietman points to the widespread phenomenon of buying on credit. He finds the criteria for people to buy in installments too flexible, moreover, the criteria are usually drawn up by the companies themselves.
Finally, Rietman believes that when certain categories of expenditure can increase very rapidly, there should also be a system in place to limit these increases or mediate their impact. “We once privatized utilities. I would not argue for reversing that, but had we not done so, we could have done something about these huge price increases.”
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