Israelis are consuming more and adopting higher standards of living, according to a report from Ynetnews. For the first time ever, mortgage debts and other loans reached more than half a trillion shekels – NIS 504 billion to be exact. The figure represents a 23% increase over the past three years.
The average debt per household is now at about NIS 200,000.
Low interest and higher employment rates have increased consumption among Israelis. We’ve seen accelerated growth in the consumption of durable goods, like cars, dishwashers, refrigerators and washing machines. Along with this growth, we have also seen an increase in “consumption standard,” standards of living.
Israeli’s chief economist has cautioned that in 2016, household credit increased at a rate of 7.5% and non-housing credit rose by 9%. Household credit has been expanding for the past three years and follows a five-year period of slow growth. The figures show that private consumption is at least partly financed by credit.
The Bank of Israel has also cautioned Israelis about taking on more debt. Rising debt will eventually cause instability in the economy if it continues growing at its current rate.
With more Israelis using loans or credit to make purchases, the risk of falling into the vicious cycle of overspending is rising. It’s one thing to use a credit card to finance a home or auto repair, but some Israelis may find themselves falling into the trap of relying on credit cards for every purchase.
For some low-income Israelis, debt payments have become a way of life. The Israeli government is taking steps to help those stuck in the revolving debt cycle. New legislation has been proposed by Justice Minister Ayelet Shaked that would forgive the debts of low-income individuals, or those with “limited means.”
If passed, the bill would wipe out an estimated NIS 10 billion in liabilities owed by more than 30,000 Israelis with NIS 250,000 in debt, on average.
Under the legislation, “limited means” refers to debtors who have no assets outside of their salaries and for whom collections are not likely to produce anything useful to creditors. Those who fall into this category are typically barred from leaving the country, opening a bank account or using credit cards. The bill would, essentially, give these individuals a fresh start.
What about Israelis who don’t fit into this category, but are falling dangerously close to being trapped in the debt cycle?
There are many ways to kick the overspending habit:
- Cut back on credit card usage. Avoid using credit for making everyday purchases.
- Avoid making impulse purchases. Make a list of the things you need to buy before walking into the store.
- Don’t underestimate the effects of small purchases. A cup of coffee or lunch with friends may be a small expense, but it can add up to hundreds of dollars a year if you go out multiple times a week.
- Avoid getting trapped in the “keeping up with the Joneses” cycle. As more Israelis adopt higher standards of living, it may be tempting to try and keep up with the neighbors, but this may also put you into a pattern of living above your means.