Struggling Tenants Drowning in Financial Obligations
Unforeseen financial burdens have skyrocketed in households across the country, according to the Institute for Financial Services e.V. (iff). In 2023, health issues and addictions surpassed unemployment as the leading causes of debt for the first time. However, housing and energy costs loom as persistent threats, especially for lower-income families.
Financial struggles come with a heavy social stigma, as Sally Peters, CEO of the iff, explains during the annual debt counseling week: "Over-indebtedness isn't just about the money - it's a social issue too." Over-indebtedness occurs when households can't meet their payment obligations, neither through their income nor their assets. Young adults, the elderly, and single parents are especially vulnerable, according to the iff.
The major source of debt these days? Online shopping and so-called "Buy now, pay later" (BNPL) models. According to the Working Group on Debt Counseling of the Associations (AG SBV), bills can be paid in installments or at a later date, making it easy for consumers to lose track. The AG SBV, a coalition of top welfare association associations operating over 1,400 counseling centers nationwide, credits a lack of financial education as the primary reason for BNPL falls.
Demand for debt counseling has surged, with 63% of participating institutions reporting a significant increase, according to a recent survey. But over a third of counseling centers don't offer financial education services, citing lack of resources. The AG SBV urges stronger financial commitment to financial education and stricter provider regulation.
To tackle housing and energy costs, social scientist Andrej Holm suggests a nationwide rent cap, while the coalition agreement between the SPD and CDU focuses on boosting investments in the energy sector. Alternative solutions, such as an energy basic income, could provide sustainable solutions for lower-income households.
As for BNPL models, the EU consumer credit directive must be implemented in German law by November 2025. Providers will then have to provide clear information about transactions and risks, as well as reliable access to counseling. From then on, mandatory debt counseling and insolvency advice could become the law of the land.
In essence, financial education combined with regulation can help lower-income households avoid relying on BNPL services and manage their finances effectively. Here's how:
- Financial Education: Education equips consumers with awareness, critical thinking, budgeting, and planning skills to make informed decisions about BNPL services and steer clear of unexpected costs.
- Regulation: Mandatory affordability checks, clear terms, and enhanced consumer protections can prevent over-indebtedness.
- Implementation Strategies: Collaboration, public awareness campaigns, and strong legislative frameworks are key to effective change.
With a combination of education and regulation, Germany can help curb reliance on BNPL services and alleviate debt among lower-income households.
Personal-finance education can empower individuals to make informed decisions about using Buy now, pay later (BNPL) services and avoid potential debt issues. Strengthening financial education can help households manage their finances more effectively, reducing the need for such services.
Effective debt management strategies, like implementing mandatory affordability checks, clear terms, and enhanced consumer protections, can prevent over-indebtedness that arises from the use of BNPL services. Regulation plays a crucial role in protecting lower-income households from financial burdens caused by these services.
