Finland has proposed to tackle the growing indebtedness of households, favored by low interest rates and the digitalization of credit services, through a national strategy aimed at improving the financial education of its citizens.
According to the Bank of Finland, household indebtedness in relation to their income is higher than ever and already reaches an average of 127%, a trend that, according to the authorities, poses a threat to both the prosperity of citizens and For the national economy.
Housing expenditure represents around 60% of Finnish total debt, especially in the form of mortgages and loans through neighboring communities, an increasingly popular modality.
Low interest rates, generally linked to the Euribor, have triggered the demand for mortgage loans in recent years, reaching a total amount of 100,000 million euros at the end of 2019, almost 40% more than in 2010, according to data from the Bank of Finland
At the same time, the delinquency of households also records record numbers: about 390,000 Finns – equivalent to 7% of the total population of the country – are so indebted that they cannot meet their payments.
The number of defaulters has increased more than 30% in the last decade, driven by low interest rates of bank loans and the rise of microcredit companies, which in some cases lend money simply by sending an SMS.
“New forms of loan, operators outside the traditional banking sector and some new practices have reached the market, which has increased the availability and attractiveness of loans,” explains the Bank of Finland on its website.
To try to reverse this trend, the Finnish authorities are preparing changes in the regulatory framework of the sector and have launched a national project to improve the financial knowledge of citizens.
The first phase of this project, coordinated by the Bank of Finland and in which the Ministries of Justice and Education, various NGOs and other institutions also participate, is to analyze the level of economic knowledge of the population in general and the information currently available about the topic.
Once these data have been collected, they will develop a mechanism that allows for the continuous evaluation of consumer behavior in financial markets and will establish a strategy at the national level, which includes authorities, banks, experts, Non-Governmental Organizations (NGOs), companies Private and unions.
“The general idea is to facilitate people’s access to financial education content on the Internet, because now that information is widely dispersed on hundreds of different websites,” Jenni Hellström, communication director of the Bank of Finland, explains to Efe.
According to Hellström, one of the main factors of the growing indebtedness of Finns is the digitalization of payments – either with a card or with mobile applications – and the lower use of cash each time.
The percentage of payments by credit or debit card of Finnish consumers in stores increased from 30% in 2000 to 81% in 2018, while the use of cash was reduced to just 19%, according to data from the Bank of Finland.
“Indebtedness has to do with the way payments are made in the Nordic countries, because the whole process of paying for purchases has become literally invisible,” says Hellström.
“What we see is that, especially among young people, but also in other sectors of the population, it sometimes happens that the account of how much is actually spent is lost a little, paying is so easy that it is no longer given so much attention.” , Add.
Hellström also attributes the high indebtedness of households to the rise of credit companies, many of them outside the control of financial authorities, which offer quick and easy-to-obtain micro loans, but with high interests.
The ease of obtaining this type of credit, which ranges between 20 and several thousand euros, is causing a spiral of over-indebtedness, as they are sometimes used by people who have trouble reaching the end of the month to pay their debts, falling into a vicious circle that is difficult to leave.
“There is a fairly wide range of fast and easy credit for small amounts, and there are hundreds of people in Finland who have had problems with these small loans they take,” he says.
Despite having one of the best and most equal educational systems in the world, the authorities in Finland suspect that not all of their citizens possess sufficient knowledge to make economically sustainable decisions.
By Juanjo Galán