Finnish households' economic margin
Mäki-Fränti, Petri (15.12.2011)
JulkaisusarjaBank of Finland. Bulletin
JulkaisijaBank of Finland
Julkaisun pysyvä osoite onhttps://urn.fi/URN:NBN:fi:bof-201408073586
The debt ratio of Finnish households has grown steadily over the past decade and in 2011 stood at approximately 108% of disposable household income.' Despite the growth in the debt ratio, the low level of interest rates has enabled households to continue to service their loans, and the employment situation did not show any rapid deterioration even during the recess-ion of 2008-2009. There have actually been very few payment defaults by Finnish households, despite the growth in the debt ratio. The most heavily indebted house-holds could nevertheless be vulnerable co financial difficulties. Even a short period of unemployment, or an increase in housing loan interest rates, could force them to substantially reduce their accustomed level of consumption, with this being reflected in increased volatility in aggregate private consumption. This would in turn amplify cyclical volatility in the economy. Moreover, excessive levels of debt increase the risk of households defaulting on their payments, and in an extreme scenario household credit risks could endanger the stability of the entire financial system. More important than the average debt ratio is the way in which debt is distributed between households. High-income and wealthy households are better placed than low-income households to bear risks that are large not just in absolute euro terms, but also relative to house-hold income. The larger the amount of money left over after loan servicing costs, the easier it will be for a household to adjust its consumption in the event of a decline in income due, for instance, to unemployment.
ISSN-L 1797-3775 (print) ISSN 1797-3783 (online)