A new study shows that increasing numbers of German households are unable to manage their debt. Meanwhile, some states are freezing or cutting funding for debt counseling programs, leaving debtors in the lurch.
More Germans are having trouble with their bills
It's not uncommon for German families to have some form of debt, such as credit, a mortgage or a loan to finance bigger purchases. But if a family experiences unemployment, divorce, or a lengthy illness, it's often difficult to avoid the slippery slope toward unmanageable debt.
A new study by the Ministry for Families reveals that the number of households struggling with debt in Germany is increasing. In 1994, around 2 million households were classed as overly in debt. By 2002, that number had risen to 3.1 million or 8.1 percent of all households.
"It's a number we have to take very seriously," said German Family Minister Renate Schmidt. "Debt can have bitter consequences for those affected by it, especially when they have children. Borrowers can't be allowed to stay in the trap of debt -- they need a way out so they can lead normal lives again."
The study defined being in debt as when an individual or family is unable to cover their costs or pay off their debts despite a permanent reduction in living standards. Once that stage is reached, debt quickly spirals out of control, said Gunther Zimmermann, a sociologist at Karlsruhe University.
"If there's no more money coming from the bank, then other debts for things such as rent and electricity quickly add up," Zimmermann said.
Starting in 1999, individuals and households in Germany were given the option of registering bankruptcy, just as a company would. Those who pursue this option need the assistance of their local debt counselor, a service which is funded at the state level.
Waiting in line
But due to tough economic times, states are reluctant to put any more funding in debt counseling, despite the increase in the number of people who need the service. In Hesse, the state government has capped funding at €2 million ($2.5 million) per year. In Bavaria, the debt counseling program is having to make do with a two-thirds reduction in funds. The result is that many Germans are being left alone with their problems, or facing waiting times of more than six months before they get an appointment.
"The federal states have to take their responsibility seriously and continue to fund debt counseling," Schmidt said. "In addition to this, general financial education needs to become part of the school curriculum, so children learn how to handle money while they're still young."
No longer credit-wary
Credit cards are gaining in acceptance
In the past, Germany was known as a society of savers. Credit cards were something of a rarity. Travelers hoping to get by with their Visa or Mastercard in Germany frequently found they had to access cash to pay for goods and services. But that's starting to change.
While Germany's difficult economic situation is partly to blame for the increase in private debt, some experts say a change in the German mentality is also responsible. Malu Dreyer, a state secretary in Rheinland-Palatinate's Ministry for Social Affairs, said she's convinced that Germans' general willingness to take on debt -- combined with fiscal irresponsibility -- has grown.
"Those affected by debt often don't realize that they have to adapt their lifestyle if they're suddenly confronted with having to get by on one income," Dreyer told the Associated Press news agency.
Germany still has a long way to go, however, before it gets close to the record level of consumer debt in Britain. The Bank of England estimates the collective household debt in Britain at more than €1.4 trillion -- the equivalent of what is owed by Africa, Asia and Latin America to international banks and through loans from other countries.
Britain a leader in consumer debt
Britons don't mind borrowing to shop
Britain's National Consumer Council said around six million families are struggling with debt -- twice the number affected in Germany.
"The reason for this big difference is housing and housing credit," Martin Weale, director of the Britain's National Institute of Economic and Social Research told DW-WORLD. "Fewer Germans own their houses, whereas in Britain, two-thirds of people own houses, meaning mortgage credit is a really big form of borrowing."
In Britain, borrowers are often tempted by ads and mass mailings from dubious firms offering quick, easy approval for credit cards and loans. Even the country's big banks have been called before parliament, accused of pushing credit card debt on borrowers who can't afford it.
A similar phenomenon is becoming observable in Germany. As the number of people struggling with debt increases, so do the offers for quick credit. Malu Dreyer says the states won't be able to keep up with the demand for debt counseling, particularly once Germany's latest labor market and welfare reforms are introduced in 2005.
She said that Germany's private banks should be required to help borrowers struggling to keep up with payments, as it's the banks that most profit from credit agreements.