Do the Dutch have more debt than other Europeans?

Current issues related to economy, (responsible) investment, pension and income: every week an APG expert gives a clear answer to the question of the week. This time: Thijs Knaap, chief economist at APG, on how much debt the Dutch have compared to other Europeans.

The number of Dutch households in debt is expected to increase in the coming period. The cause is the increased energy prices. Currently, debt assistance takes too long and too few people with problematic debts report to the municipality, says Minister Schouten (Poverty Policy, Participation and Pensions). She therefore wants to ensure that households with incipient money worries come into the view of social workers earlier. This should prevent debts from rising too high. Compared to other Europeans, do Dutch households have a lot of debt?

Big debtors

Figures from the Organization for Economic Cooperation and Development (OECD) show that of all European nationalities, the Swiss have the most debt, 255 percent of disposable income. “The Norwegians and Danes are still above that. But recent data from the Bank for International Settlements (the central bank of the central banks, ed.) show that many of them have recently paid off part or all of their mortgages because of rising interest rates,” Knaap says. “That would mean that residents of both those countries now have a lot less debt AND that the Netherlands is second behind Switzerland. So the conclusion is that according to this measure, of total debt to disposable income, we are pretty big debtors. Including from an international perspective.”

The development in Scandinavia does provide an indication that debt should not always be seen as a problem, Knaap continues. “A debt can be a choice, and if you have assets or a mortgage against it, it is not so bad.” To this end, he points to figures showing the correlation between debt and assets by country. “The great thing is that the Netherlands is also number two there. We also have the most assets after deducting our debts, after Belgium, scaled by disposable income.” It should be noted that the OECD does not consider pensions as assets. “If that were included, we might be the country with the largest net wealth among households. Although the reason Switzerland is missing from this list, might be its banking secrecy.”

Individual Dutch people

So much for the macro figures. Knaap: “As a society we have far more wealth than debt, and we could pay it all off tomorrow, so to speak.” But that does not apply to individual Dutchmen. “If we look at the debts of the median Dutch person (the one with the middle debt when all the debts of Dutch people are sorted from low to high, ed.), then, as the Netherlands, we are in the European middle. This does indicate that the debts we have in the Netherlands belong to a relatively small group, and this mainly concerns mortgage debts. Take those out, 61 percent of the Dutch have no debt at all. At the same time, 60 percent of the Dutch have a mortgage, the highest percentage in Europe.” This is mainly a result of the tax favoritism of homeowners. “Borrowing a lot for an expensive house does not have to be a problem, until the house suddenly becomes worth 20 percent less and is ‘under water,’” he says. This is why the Dutch Central Bank has long said that lending standards should be tightened and mortgage interest rates should be phased out. These kinds of measures will lead to the debt in the Netherlands declining. But it will be some time before we drop in the international debt rankings.”

Nibud figures show that the number of Dutch people with payment problems is not yet much higher than in previous years. “That is quite remarkable, soon after the Covid pandemic, and with current inflation,” Knaap says. “Although of course there was income support from the government during the Covid crisis, and the effects of the energy crisis are now cushioned by the price cap and tax cuts. Possibly many people had some savings in reserve that they now need to tap into. If so, more households may eventually run into debt, as the government expects.” According to Nibud, payment problems arise mainly when people’s income remains stable but expenses increase. Knaap: “That can be the case with people with a very low income but also with high incomes, who suddenly see their fixed expenses rise sharply. That is exactly what is happening now, with inflation.” 

Complex economy

The countries high in the OECD’s debt rankings, such as Denmark, Norway, Switzerland and the Netherlands, are among the most developed economies in the world. And that is no coincidence, Knaap explains. "In fact, it is related to the development and so-called financialization of a country. If an economy is unstable, debts are also lower. But that is not necessarily better than a developed economy where you can take out loans to buy a house or start a business. So the fact that the Netherlands has very high debts can also be seen as a sign that we are rich and successful. After all, we live in a very complex economy where a lot is possible: there are banks, you can buy on installment at Wehkamp, and companies are willing to provide credit. This is a consequence of the fact that we are a well-functioning society with relatively high levels of mutual trust. So we should not abolish debt, but we should be careful not to leave people with problematic debts.”