The Brazilian Household debt has reached a record in March since the Central Bank began measuring this index, says a report from the bank.
In the first quarter of this year the debt reached 43.99%, which means that families owe financial institutions almost half of what they earn each year. In 2009, this rate was 18.39% and since then it has not stopped growing.
Over 60% of families began acquiring higher levels of debt in 2013, according to a survey by the National Confederation of Commerce (CNC). Families reported having debts on credit cards, in so called special check, supermarket cards, personal loans, repayments on car purchases and health insurance.
Of those families, 21% do not pay their debts and claim they have no chance to pay them off, while other families that believe they won’t be able to pay their debts off rose to 7.2%.
The reasons for this increase in household debt are many, but the main cause is the easy access to credit which has been spurred mainly by the Brazilian government. From 2005 until today, the volume of loans increased from 28.1% to 54.1% of gross domestic product (GDP), but according to experts it may begin to decrease again. This decrease in lending will have to occur or the country risks becoming the United States of South America, where debt has surpassed GDP.
Along with this, there has been new property loans which for many years was sealed to the lower middle class. Many families have chosen to break free of the weight of buying their own home or renting, prompting some economists to fear a housing bubble. This has led an absurd increase in the prices of apartments and homes, which feeds the housing bubble. For example, apartments whose real value is R$ 100,000 are being sold for R$170,000 or more. Even small cities that have little to offer are seeing an abnormal increase in demand for new homes and apartments.
However, what draws families into debt is the mirage of available bank credit cards which they are happy to use to fill their homes with the latest trendy trinket. It is a temptation that today looms over almost one hundred percent of the families who pay a high price as these credit cards have the highest interest rates in the world. Rates go anywhere from 12% to 22% monthly. When the debt has grown and families try to pay the interests, they are not able to deal with those debts that continue piling up.
The average family has 5 credit card, but some reach up to ten, and that is leaving out the supermarket cards. According to the latest study of PEIC, an organ that investigates consumer debt, 76% of families have debts on credit cards.
Among families that earn around $ 1,100, some $488 go to make payments on debt. Considering bank interest rates on credit cards, Brazilians end up paying at the end of the year just about 220% of the real value of things they purchase. This, coupled with inflation in some basic food products such as tomatoes, potatoes, onions, fruits, milk etc, which has been of more than 100%, is resulting in a decline in overall household consumption which is beginning to worry, since one of the axes of the Brazilian economy that saved the country of a recession was its domestic consumption.
A study completed in São Paulo, with families of the upper middle class that earn around $2,900 a month, revealed that the middle class is also cutting down on spending and has decided to reactivate savings habits due to the increase in prices.
Instead of going to expensive restaurants, as before, they order a pizza at home. Instead of going to the movies, they watch movies on television. Instead of one trip a year to Europe or the United States, they are traveling within the country.
Getting in debt is not the same as living well
The fairly recent boom in the Brazilian economy, which many think has taken millions out of poverty — not true if one considers they’ve gone from not having money to being in debt — has not translated into better living conditions. Although Brazilians can enjoy certain consumer goods, the classic middle classes begin to suffer the sting of having to tighten their belts due to the high levels of debt. The worse of all this is that the state of indebtedness seems to not have been worthwhile.
According to the latest economic and social report prepared by the Organization for Economic Cooperation and Development (OECD), Brazil is barely ahead of Mexico in the classification of quality of life. The two countries are, along with Chile, at the tail of the 36 countries analyzed (most advanced economies, but also some emerging ones). Mexico is the second last, ahead of only Turkey, Chile is ranked 34th and Brazil, third to last.
The alternative index to Gross Domestic Product (GDP) in the OECD report measures the economic and social welfare indicators and takes into account housing, income, jobs, community, education, environment, civic engagement, health, life satisfaction, safety and work-life balance. After living in Brazil for four years, it is easy to confirm the results of the OECD study. Brazil has one of the largest economic gaps in the emerging nations. The country has a broken educational system where the majority of the people remain widely ignorant about what is happening in the world, and where just as in the United States, most kids only know about Justin Bieber, Beyonce and little else. In order to learn the state of the housing bubble, it is enough to take a trip outside any mid-size metropolis to confirm that poverty is still widespread in Brazil.
World Cup stadiums are being built next to slums, which in many cases are physically removed to make way to new developments. Where do slum dwellers go? No one knows. Welfare runs rampant in Brazil. Its socialist government, masked as an emerging fake capitalist one, spends tons of money from tax payers to subsidize uneducated and sometimes lazy Brazilians who don’t look for work because for them it is enough to get the check from Brasilia at the end of the month. It is not rare to meet a woman who has a number of kids to get even more cash from the government.
In terms of economic data, the OECD study shows that Brazil is in last place when it comes to adjusted net disposable income (the money a family earns per year, after taxes). While the OECD average is of $ 23,047 per year, the Brazilians have only $10,225. In Mexico (ranked 31 of 36) household income is higher, $12,732 a year, but the country has another problem: the gap between the richest and the poorest. Those at the top 20% of the income scale earn 13 times more than people at the lower 20%.
Regarding employment, Brazil’s most worrying unemployment numbers are higher for people between the ages of 15 and 64 years, that is most of the population. Over 68% of people in Brazil are in this situation (80% of men and 56% of women). Brazil is, however, ranked 16th in terms of hours devoted to life outside of work, and the percentage of employees with long working hours is reduced to 13%. This is not a surprising number given the fact Brazilians are fairly relaxes about schedules, timetables and responsibility in general. Here, time is ornamental and arriving late to work or school is almost always the rule. Brazil is also one of the countries with more holidays and it is also perhaps the only country in the world where a significant part of the economic activity suffers a slow down — in some areas a complete stop — between December and March of every year, which is when Brazilians take time of from their ‘hectic’ working year.
A common saying here in Brazil describes the way in which this country generally functions: As long as there is enough money for beer and barbecue on the weekend, everything is OK. Now, take that away along with soccer, and the country will probably enter very dark times.