Czechs react differently to the tightening of family budgets due to inflation. Some take greater risks, or are forced to take them, while others tighten their discipline. While last year a tenth of the population behaved at high risk when borrowing money, this year it is one percentage point more. These are mainly middle-aged people with lower education.
“During that year, some of the cushions we had as a reserve decreased. The increase in energy prices meant for part of the population an expense they had not anticipated. They had to mobilize their resources, families and acquaintances, they had to adjust expenses somewhere,” Michal Straka, financial market specialist from the Ipsos agency, told SZ Byznys.
Straka was one of the guests of CBA Focus, which is prepared by the Czech Banking Association and Nauzal. Filip Hanzlík, chief lawyer and deputy executive director of CBA, also commented on the topic of household indebtedness.
The above data is shown by the Risky Debt Index, which was prepared by the Ipsos agency for the Czech Banking Association (ČBA). 1,000 respondents between the ages of 18 and 79 took part in the representative survey, and it is considered very risky, for example, when a person is willing to cover repayments with another loan or has not paid three installments in a row.
For example, when he is willing to borrow for fun, or he does not check whether the non-banking company from which he borrows has a CNB license, it is considered a lesser risk. The risk factors are added up, and anyone who scores at least four points on a nine-point scale is included in the group with risky behavior.
But the research also showed that there was a significant increase in the number of people who do not behave risky at all. Their number rose from 33 to 42 percent. According to the survey, young people under the age of 26 and seniors with a high school diploma or higher education behave most responsibly. In the past, people most often borrowed for practical things, such as cars and motorcycles (34%), apartment renovations (27%) or consumer electronics (26%). Conversely, they would never borrow for experiences or holidays (72%), sports equipment (46%) or general consumption (38%).
“Those numbers reflect rationality. Borrowing for housing and mobility is fine. We stepped on the debt brake a little, after the crisis the amount of loans decreased. Larger amounts are less likely to be borrowed for the renovation of an apartment. Fewer people change appliances,” adds Michal Straka from Ipsos.
Wedge by wedge is ready to knock out every seventh
The survey also showed that 14 percent of Czechs would consider borrowing to pay off another installment, i.e. if they were in a situation that required it. Sixty percent of them would borrow from a bank, roughly a third from relatives or acquaintances. Last year, there were “only” nine percent of people who were willing to go into debt again and more disadvantageously because of an old loan.
“The vast majority of people realize that borrowing to pay off another installment is not very responsible behavior, on the other hand, 14 percent feel that they could ever get into such a situation. The positive news in this context is at least that they would primarily like to solve this situation with their bank rather than with someone who could deepen their problems even more,” comments research Michal Straka from the Ipsos agency.
Even one unexpected expense in the order of thousands can often get people into a carousel of debt. It is ideal to have a reserve in your account for such situations. “A six-month reserve is considered optimal. When someone lives paycheck to paycheck, it’s a good idea to write down income and expenses on paper, consider whether I can increase the income with a part-time job, for example. Put on one side the necessary expenses and those that I can afford,” says Filip Hanzlík.
Eight percent of Czechs are considering a loan next year (this year it was five percent). A quarter of them plan to borrow between 100,000 and 200,000 crowns, while a smaller fifth of people want to borrow between 20,000 and 50,000 crowns. Czechs intend to go into debt most often to renovate an apartment, which is an increase compared to last year. Compared to last year, on the other hand, the number of people considering a loan for furnishing an apartment, consumer or white electronics has decreased significantly.
On the other hand, due to the fear of rising inflation, 15 percent of Czechs do not plan to borrow in the next year, and 77 percent would not consider it at all (82 percent last year).
When borrowing, Czechs most often use installment purchases, overdrafts, and consumer loans and loans. They use the overdraft mainly for regular purchases (43%) or as a reserve (33%). 28 percent of respondents have experience with purchases paid by credit card. They most often use it as a reserve (63%) or for regular purchases (12%).
58 percent of the respondents borrowed money from the bank, which is five percentage points more than last year. The number of people borrowing from friends and relatives has also increased. For people between the ages of 18-26, it is even half of them.
According to Straka from Ipsos, non-banking companies are sought by clients because they are believed to apply more lenient criteria. “It’s because they know they’ll get a loan there. Part of the population doesn’t even go to the bank because they think it won’t help them. Some have already been rejected by the bank,” explains Straka.
“Lending in banks is good news in itself, especially from the point of view of relatively low risk. The percentage of people who express the belief that they are able to repay their loans without fluctuations is also rising, which is optimistic. However, the problem is that a fairly large group of people, when negotiating loans with non-banking companies, do not check at all whether they have a license from the CNB. The level of risk in such cases increases noticeably, and the borrower can easily find himself in a very unpleasant situation,” points out Filip Hanzlík, chief lawyer and deputy executive director of CBA.
The most common are small loans, or over half a million
Czechs often borrow only small amounts of money and most of them (two thirds) have a loan from only one credit provider. The total value of loans is most often up to twenty thousand crowns (18%). The second largest group of people are borrowers, who, on the other hand, borrow large sums of over half a million crowns (17%).
The most common reason is a lack of cash (62%), a fifth of people do not want to wait and save, and 15 percent of people borrow because they do not have the opportunity to save enough money.