It all adds up...

It is an undeniable fact that we live in a consumer society. Although American spending habits highlight all that is wrong with consumerism, it appears Europe has adopted the American debt and consumer mindset. There are myriad occasions that have increased plastic usage. Petty purchases for Halloween costumes or Christmas presents to significant payments for holiday trips and mortgage payments can now be put on credit.

Over the past four years, consumer debt has increased in Europe with Britons sitting comfortably atop the pole. In 2006, the research company, Datamonitor, disclosed that the average British resident owes £3,175 in debt compared to the rest of Europe whose household debt approximates to £1,558. Of course these numbers pale in comparison to the amount owed by the average American consumer but remember, this data was collected in 2006 and has certainly risen within the past few years.

Critics often exclaim that prior to the 21^st century, citizens lived within their means. Ideals of hard work and morality allowed them stray from a habit of reckless spending. They did not buy excessive material goods or luxuries but rather what they needed. Contrary to these beliefs, debt has always been an integral aspect of human and economic history. From Bible stories to nineteenth century Dickensian tales, debt has always been with us but never quite so prevalent.

The advent of easily available credit cards and smart strategic marketing has sold the idea that one can live their dreams with plastic. This in effect has created an over-indebted society which has become reliant on credit. The recent economic disaster known as a worldwide recession has further burdened citizens and created a large number of defaults and bankruptcy filings. As Stefan Thiel points out, “Europe’s own mountain of debt could cause the recession to linger longer there than in America”, as banks have tightened up on lending.

Nonetheless, compared to other European nations, Britain has the highest debt ratio compared to Germany, Spain, France, Italy and Poland. Mortgages and ownership of numerous credit cards ran up to the limit contributes to the rapid increase in debt. The rest of Europe also has no housing bubble that is causing the rising debt to income ratio seen in the UK.

Are government adding up spending?

As economist Michael Penn observes, “consumers from poorer European countries are more cautious and tend to save more and borrow less”. Financial advisers and debt counsellors blame this rising trend on the financially illiterate who are living beyond their means.

But citizens are not the only ones borrowing at a larger rate. Governments are just as fiscally irresponsible as its citizenry. A recent report by the Finance Markets revealed that Chancellor of the Exchequer, Alistair Darling is seeking to reduce the UK increasing debt. And as preparations for the 2012 Olympics are underway in London, the city is hoping to profit from the games and avoid having to pay off millions even billions in the future. For hosting the Olympics event is no cheap feat, just ask the city of Montreal who just finished paying off its debt from the 1976 games.

So as another Christmas season is over and holiday purchases put on credit, it seems consumer debt is no longer an American problem but fast becoming a European problem. Governments are concerned (as they should be) and are taking measures to decrease the over-indebted rate in their countries. The European Consumer Debt Network estimates that more than 20 million people are over-indebted in the EU hence proposals to create an effective credit laws and implement guidelines to educate people about responsible credit. At the end of the day however, Europe has a growing debt problem and it is not one that cannot be ignored.