1) The document discusses factors that influence consumption and debt levels, including income, credit availability, savings habits, and motivations to consume. 2) It analyzes consumption and debt trends in Portugal since the 1970s, noting periods of high savings and low debt followed by rising indebtedness. 3) The document outlines challenges around over-indebtedness, especially among young families, and proposes solutions like financial education, responsible lending, and debt renegotiation programs.

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José Manuel Ribeiro
Director-General
Consumer Directorate-General
Portugal
18th Consumers International World Congress
Luna Park, Sydney, 29 October to 1 November 2007

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Some Factors that Influence Consumption Levels
Income
Credit appealing Financial behaviour
Savings Motivations to consume:
. Physiological needs
Consumption . New induced needs
Indebtedness standards . Social recognition
. Hedonism
Socio-economic context . Cultural values
. Etc.
Personal Characteristics
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Consumption in Portugal
……………………………..1974…….1986...1990………….…2000…………..……
. high levels of saving . new consumption standards
. low levels of consumption . credit facilities
. low levels of indebtedness . high levels of confidence
Portugal in EEC INDEBTEDNESS RISES
April Revolution
. social, political, cultural
and economic changes
. changes in the means of payment
. risk of overindebtedness
. social exclusion
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Consumption - Indebtedness
objective: income, age, qualification,
Motivations to consume marital status, etc.
social: buy to fit in, hedonism
rational
Kinds of consumption
excessive (materialism)
High Materialism Levels + Objective and Social Motivations
compulsive consumption overindebtedness
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Some Factors that influence (Over) Indebtedness
Structural Factors
1. Money Supply 2. Money Demand
. Legal Framework . Income insecurity / Wage
stagnation
. Credit promotion techniques and . Fragile social protection in illness,
risk management available in the unemployment, invalidity, etc.
credit institutions . Divorce
. Cognitive bias (e.g.: optimism)
Cultural Factors
3. That affect the Supply 4. That affect the Demand
. Culture of (needs and wishes)
. Market’s liberalization ideology satisfaction
. Indebtedness culture . Development of high expectations
. Overindebteds as marketing by the individuals (influenced by the
targets media)
. Exploitation of the minorities that . Acceptance of indebtedness as
have been excluded from the credit ‘normal’
market . Decrease in saving
. Lack of financial sophistication
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Indebtedness
House acquisition
Other goods
Indebtedness level of families as a percentage of their disposable Income
The Portuguese reality
Portuguese study’s sample . . . . . . . . 835 individuals
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Indebtedness: some correlations
individuals that work full time to others or individuals that create their
Labour situation
own job have more debts
Mensal income the higher, more the number of debts
Marital status married people have more debts
Utilization of electronic
payments, frequency of
credit request,
any of these factors makes the number of debts grow
propensity to materialism
and to excessive
consumption
Frequency of acquisition
of furniture, equipment
any of these factors makes the number of debts grow
for the house, drinks and
tobacco
Savings the existence of savings reduces the number of debts
Budget management the use of budgets in the households reduces the need to ask for loans
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Attitudes towards credit – some conclusions
The Portuguese attitude towards debts seems to be favourable to indebtedness but cautious
when the all household is involved
Most of the Portuguese households (72,2%) voluntary keep saving resources
Savings are mostly done when the income level grows, when the individual works for
another person and when he lives in the Metropolitan Area
When the household makes a budget, it has a positive effect in saving reserves
Saving also contributes to develop the growth of financial management and to keep the
acquisition process rational
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Attitudes towards credit – some conclusions
When the Portuguese households save to consume, they increase the probability of making
compulsive consumption
If they save to consume, then their reason is more social than objective – which is called the
conspicuous consumption
When precautious saving is made, the materialism tends to reduce, the regularity of saving
tends to grow, the rationality of consumptions tends to grow, it usually implies the
existence of a budget and households are more aware of their need to manage their
income
Saving to the retirement period it’s associated to a reduction of materialism
When the aim of saving is to transmit the wealth to other generations, there’s a
predisposition to have a budget and to keep more control and rationality in
consumption
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Overindebtedness
growth in consumption growth in indebtedness
growth in overindebtedness
(especially in young couples with children and in families with less income)
- Unknown factors in the credit contract (divorce / disease / unemployment)
- Rises in interest rates
- Bad planning of the familiar budget
How to deal with the households overindebtedness?
1. Actors’ Responsibilities
2. Investigation, Evaluation and Benchmarking
3. Consumer Financial Education
4. Better Regulation
5. Responsible Lending Practices
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Overindebtedness
1. Actors’ Responsibilities
Credit Institutions
- Develop instruments to evaluate potential indebteds and avoid insolvency situations
- Develop voluntary codes of conduct in order to pursue Responsible Credit
- Responsible advertisement
- Not to hide information:
- The consumers must have clear, complete and understandable
information about the contract they’ll sign
- The consumers must be informed about theirs and their financial institution’s
rights, obligations and responsibilities
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Overindebtedness
1. Actors Responsibilities
Consumer Associations
Advisory Financial Offices are important because:
- They can provide answers to consumers’ legal questions
- They can help indebted or overindebted households to solve
their problems and provide independent counselling
Recommendations:
- Use of internet as an instrument to cover all country and develop ‘indebtedness
tests’ to help consumers understand their level of dependency
- Participation in financial education programmes
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Overindebtedness
1. Actors Responsibilities
Government - Preventive Measures
Credit supply:
- Create and enforce the use of clear rules to be followed by all financial institutions (that
standardise the relevant information that financial institutions must provide)
- Advertise the Annual Tax Rate (ATR)
Credit demand:
- Stimulate savings
- Financial education namely the meaning of the ATR
- Support Advisory Financial Offices
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Overindebtedness
1. Actors Responsibilities
Government - Measures to deal with the Indebtedness and Overindebtedness
Credit supply:
- Create special credit lines to less income households
- Sensitize financial institutions to the need of readjustment of payment plans
- More responsible credit and calculate risk more efficiently
Credit demand:
- Mechanisms necessary to facilitate rehabilitation of over indebted individuals and families
and their reintegration into society (Renegotiating debts versus Personal Bankruptcy)
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Overindebtedness
2. Investigation, benchmarking and permanent evaluation
Intensive investigation to follow and understand fast changes in our consumer society in
order to act in the systemic factors of overindebtedness
- a priori (avoid the problem before it affects consumers)
- a posteriori (to face the problem and solve it, or at least diminish its damages)
Benchmarking to share knowledge of other communities
- Not to pay learning costs
- Having in mind the specific reality of each country and community
Permanent Evaluation of measures efficiency in order to find the best solution for the
individual and the community
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Overindebtedness
3. Consumer Financial Education
Preventive (in schools)
- Financial education represents a precious common ground on which creditors and
debtors, government agencies and non-governmental organizations can stand together.
Post-overindebtedness, so that people deal with their problem, solve it and be able to avoid
it next time.
4. Better Regulation
Legal frameworks
- Markets must be the primary solution to credit problems; consumers should get as
much information as possible and have time for reflection.
Facing a dilemma
- Regulation versus Self-regulation
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Overindebtedness
5. Responsible Lending Practices
Consumers, Governments and Financial Institutions must be able to foresee and prevent
over indebtedness of individuals and families
Financial Institutions must practise a responsible credit, and must be forced to calculate risk
more efficiently
- More and better information
- Time for reflection
- Measures to alleviate the effects of the recovery of debts
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Overview
When credit ‘democratization’ generalizes and indebtedness rises, more than
prevent, we have to find a solution to consumers’ insolvency
Risk of social exclusion
- Renegotiating debts (new payment plan, according to the income) versus Personal
Bankruptcy and forgiveness of part of the debt (‘fresh start’)
- Whatever option we decide has a collective community, we can´t forget the cultural
Background
- Risk of ‘free riding’ attitude of consumers
Whatever are the measures taken
- Facilitate rehabilitation of over indebted individuals and families and their reintegration
into society
- Long-term perspective
- Its efficiency must be evaluated throughout time
- Measures must not crowd out consumers’ responsibility in fulfilling their duties
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