Social Exclusion and Private Over-indebtedness in the EU

Using the most recent available sources, primarily Eurofound (2020), Francis-Devine (2021), Kurowski (2021), Ferretti, and Vandone, (2019), and the European Commission (2013a,b), this paper discusses and analyses the effects of social exclusion and private over-indebtedness in the European Union (EU) over approximately last 10 years. There is no official common definition of private over-indebtedness in the EU, but conditionally, an over-indebted household can be deemed as one whose existing and foreseeable resources are insufficient to meet financial commitments without lowering its living standards, which has both social and policy implications if this means reducing them below what is regarded as the minimum acceptable in the country concerned. Thus, it is difficult to assess the exact number of over-indebted people, but without a doubt, this phenomenon is not trivial and is on the rise. Private over-indebtedness is an important factor of social exclusion which causes serious private and social problems, and, therefore, attracts considerable public interest. Debt problems can be a contributing factor to household tensions and their possible disintegration. The consequences can be as complex and dangerous as divorce and/or homelessness, and almost always lead to the social isolation of the affected person and members of their household. This is mostly triggered by insufficient financial literacy of the population but also due to an increased demand for new products and services that often exceed the personal financial capabilities of most people. The paper explains the situation and encompasses the conditions at the EU level, underlying the differences between old and new EU member states. While the differences between them are larger than the similarities, in most countries, total household debt grew faster than disposable income. This raised concerns about the potential adverse impact of an increased debt burden on financial stability. The article also provides measures for the prevention of private over-indebtedness at the international and national level, which can, with relatively slight adjustments, be implemented in various countries. If we simplify the Preliminary communication UDK: 336(4-67EU) doi: 10.3935/rsp.v31i1.20 Received: October 2023 ∗ This text is a part of the Project „ Partnership for prevention of over-indebtedness “, 101055238 - PPOI – SMP -CONS-2021-DA, financed by the European Commission. ∗∗ Predrag Bejaković, Independent researcher, Zagreb, Croatia, predrag.bejakovic@ijf.hr Rev. soc. polit., god. 31, br. 1, str. 29-51, Zagreb 2024 Bejaković P., Šimurina N., Babačić E.: Social Exclusion... 30 very complex analysis of the determinants of private over-indebtedness and the above-mentioned national differences, we can conclude that the majority of the over-indebted are women around 50 years of age as well as people with lower financial literacy, who are quite often of lower educational attainment. Cluster analysis conducted in this paper endorsed the notion that clusters that consist of more developed countries in the EU had higher levels of household debt, while clusters consisting of countries with the lowest real GDP per capita had the lowest levels of household debt as a percentage of GDP. Furthermore, the results of the research showed that financial freedom and income inequality were not exclusively linked to notably high or low household debt. The most obvious limitation of our paper is the complexity of the topic which required further scientific research, particularly regarding the conditions of COVID-19 and increased inflation rates around the world. Key words: over-indebtedness, personal finance, financial literacy, EU Member States.