Understanding why households become over-indebted is a crucial step to planning interventions at the level of the consumer or through policy, but it is not a straightforward task.
While it is tempting to focus on “over-indebtedness,” there are vastly different schools of thought as to how to define what that means, why people become take on unsustainable debt, and what can be done about it.
Moreover, the problem of unsustainable household debt is not limited to the world's wealthiest countries. Globally, consumer debt inhibits the ability of households to meet their basic needs, and interest charges make it increasingly difficult to meet repayments. It can seem to permeate every aspect of one’s life and prevent households from recovering economically.
Debt also has a macroeconomic impact: when a society’s level of household debt is high, consumer spending is lower, and therefore so is economic growth.
What is really needed are different ways of thinking about debt. In this post we take on debt, metaphorically speaking, with a view to moving the conversation forward. Reviewing cross-cultural evidence collected using a variety of qualitative and quantitative methods can assist us to view the problem of debt from different perspectives and help us to design better policy and practices for fair lending, financial education, and the problem of over-indebtedness.