The Issue of Household Debt

Israel’s government debt fell to below 60% of gross domestic product for the first time in 2017. For the first time ever, the country was inside the benchmark for permissible debt ceiling under the EU’s Maastricht Treaty.

Israel has been working on lowering its ratio of debt to GDP since 2003, and this feat was primarily the result of the 3% economic growth we saw in 2017. The large-scale tax revenue surplus also helped, especially since the money was not used for tax cuts or to increase government spending.

It has taken some time to lower our debt-GDP ratio, but we’ve managed to reach the goal by simply cutting back on spending and not implementing tax cuts.

While the government is lowering its debt, Israelis are taking on more debt. More Israelis are having trouble making ends meet, and we’re taking on more consumer debt than ever before.

It’s not necessarily that we’re being frivolous, although some of us certainly are – it’s that the cost of living is high. Consumers are being smarter. We’re not necessarily taking out loans or going into overdraft to pay for things we can’t afford. But the sky-high housing prices is leading to many of us taking on more debt than anyone else. Israelis are outspending their income by a staggering 156%.

Household debt in the second half of 2017 was at 42% of GDP, which is still relatively low compared to other countries. But 39% of unmarried people and 35% of married couples between 25 and 60 are outspending their income.

Debt for those 50-60 years old is the highest, at NIS 315,000. The average debt for 25-29-year-olds is NIS 150,000. The top earners owed NIS 174,000, while the lowest earners owed around NIS 88,000. Those from less affluent backgrounds owed the most money to friends and family, around NIS 110,000.

Israelis owe the most money to credit card and insurance companies. Next in line is property taxes, schools, electric, water and other utilities.

Still, the Bank of Israel is not concerned with the rising household debt. It is believed that we’ve been able to avoid a credit bubble because wages have been rapidly rising in recent years.

The rate of growth in household debt is outpacing our economic growth rate. Housing credit is increasing by 4% and non-housing credit is rising by 3.1%. Credit card debts have risen from 2.9% to 4.13% between 2013 and 2017.

Education and home maintenance are major costs that aren’t often discussed in debt studies. That’s because we often delay these payments just to manage our immediate economic troubles.

The high cost of living in Israel is coming to a head. A new survey has found that 59% of students are actually considering leaving the country. And 30% of students say the high cost of living is the country’s greatest social challenge.

Rising household debt is an issue we’ve talked about many times here. But the problem is still here and it continues to get worse. No one knows what the future holds, but we may be in for a rude awakening if we continue on this path.

About the Author
 Jacob Maslow is passionate about writing. For more than ten years, he's used that passion to transform the web presence of a number of legal and medical professionals in creative, innovative and effective ways that get them noticed in a crowded field. Jacob is originally from Brooklyn. He packed up his five children and made Aliyah in 2014. Jacob's experience and varied interests lend themselves to a diverse palette of topics ranging from technology, marketing, politics, social media, ethics, current affairs, family matters and more. In his spare time, Jacob enjoys being an active member of social media including groups on Facebook and taking in the latest movies. 
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