Ola and Kari Nordmann are fine and so are the neighbors. The financial crisis is over and the optimism for the economy is on the rise again in most people. At least that is the conclusion we come to when we read about Norwegians’ lending habits. Now we all want to be as good as our neighbor and maintain the lifestyle we think we deserve so we borrow money if the pay is not enough. Here you can read about why Norwegians love to borrow money.
As we have written about before, Norwegians’ debt is growing faster than before. Statistics from Statistics Norway showed that the gross domestic debt of the public was $ 4714 billion at the end of March this year, an increase of 5.8 per cent over one year, according to NRK. The Financial Supervisory Authority confirms this and writes in the annual report that Norway is experiencing a favorable economic development and the debt burden to Norwegian households is at a historically high level. Whether this is problematic or not depends on whether people are largely able to repay what they borrow. Based on the Financial Supervisory Authority’s findings on this, Norwegians are fit to pay back. The annual report showed that in the first half of 2014 there was an increase of around 500,000 new cases, or 14 per cent, compared with the same time in 2013. This is a strong increase in new collection cases, but 38 per cent of cases were closed early in the recovery process after that the debtor had received a reminder or debt collection notice. That is, many managed to pay off the loan without incurring payment notes.
We will not help but write a little about today’s housing market when borrowing habits are the theme. According to Aftenposten, every other Norwegian believes that it pays to have mortgages based on the historically low interest rates and favorable tax deductions. In a way, it can be more profitable than putting the money in the bank now that interest rates are so low. If you have savings, they may therefore grow more through long-term savings in the stock market or invest in housing number two. If you choose to invest in real estate you have to keep in mind that the low-interest mortgage loans we see now will not last forever, because only seven years ago the interest rate was twice as high as now. Therefore, it is important and not to borrow over ability and take into account that interest rates will go up once again. The Financial Supervisory Authority of Norway has pointed out that, with household debt levels, they make them more vulnerable to higher interest rates, loss of income and falling housing prices than before.
What provokes the desire to borrow?
There are many theories and claims in circulation about why many have such a great urge to spend money they do not have that they take out loans. Turf Böcker Jakobsen holds a doctorate in sociology and is employed by SFI (The National Research Center for Welfare). In collaboration with his colleague, Dr. Tolits. Christopher Loppe from SIFO in Oslo, he has investigated why people borrow money. The following findings are from research.no.
Everyone has certain expectations of their own lifestyle and these will vary according to our financial ability and age, among other things. What we spend on money defines our social identity. The sociologist pointed out that consumption patterns in this way help to define social groups in relation to others.
According to the researcher, there is a notion of a minimum standard for material goods in a social group. Therefore, he believes that consumer loans are not taken up randomly, but are socially controlled.
Interestingly, most people who were asked about their lending habits had a need to make an apology, although this was not in demand. This, according to colleagues, points to a basic norm in society that one should not borrow money.
The responsibility of society
The study concluded that the risk of borrowing money is assessed differently from one group to another. They thought it was disturbing that more young people were using credit as if it were part of their monthly salary. They believe that we do not necessarily borrow money well thought out and financially calculated, but rather that we do so based on socially legitimate routines and patterns of action. The researchers think it is necessary for society to intervene with better teaching and advice to borrowers.
Norway in the crystal ball
In Financial Outlook and Financial Trends for 2014, we could see that the international economy is developing poorly, but forecasts for the Norwegian economy still point to moderate growth. Reduced investments in the oil and gas sector and the fall in oil prices since June have created some uncertainty about the forecasts. At the same time, both household debt and house prices continue to rise.
If these findings are correct then it is not surprising that Norwegians love to borrow money. When most people have a satisfactory standard of living, we as social beings will do what we can to maintain it and not fall outside. If you take out consumer loans to get as big a TV as your neighbor, it’s probably never a profitable operation, but well-considered consumption or investment can make a loan actually boost your private finances.