Author: Anisha Chandrasekar

Ranging from growing student debt to the sustained aftermath of mortgage and credit expanding policies of the 70s, an estimated 1 in 5 households in the Hague face some form of debt (ING 2018). It is difficult to categorize their key demographics due to the high prevalence of the issue and the notable diversity among these households, even in aspects of income and age. However, while the causes may be far and wide, their core struggle remains similar.

Debt in The Netherlands

The Netherlands is often portrayed with the image of egalitarianism. With a relatively small elite population, the state falls above average in comparison to OECD countries concerning income equality and poverty rates (OECD 2016). However, there is a staggering amount of wealth inequality which paints a vastly different picture (Mulder 2018). While income inequality solely conveys how salary is distributed through segments of society, wealth also takes into account the value of private assets and valuable possessions like property and bonds (Kopp 2010; Macquarie 2017).

Therefore, although the top percentile owns only 23% of total wealth, which is quite favourable compared to Germany at 60% or Belgium at 44%, the bottom 40% of Dutch households have either a negative net wealth or that of 0 due to debt burdens (WSI 2016; NBB 2016). Wealth inequality in The Netherlands is in fact highest in all of Europe and second to that of the United States globally (OECD 2018). While there is often a close link between income and wealth, the high presence of debt in comparison to other European countries skew these statistics and obscure the pertinence of household financial issues in the Netherlands.

The Dutch Housing Bubble

Explaining the historic reasons behind the housing bubble comes down to a feature of the Dutch fiscal system where mortgage interests are deducted directly from one’s taxable income (Mulder 2018). Within this system, households were incentivized to take on unmanageable mortgage loans since this would at least put them under lower tax brackets. Especially considering the high tax rates of the Netherlands, this prompted large amounts of homeownership and credit loans. The problems then arose after the collapse of the housing market in 2008. With falling property value, 35% of Dutch households experienced their mortgage debt as higher than the property itself (Mulder 2018). Furthermore, Dutch law instigates that one cannot cancel mortgage debt by returning ownership of property unless its value is higher than the amount of outstanding debt. In many cases, as stated above, this was not the case (Mulder 2018).

A Flaw in the System

This brings us to a crucial finding behind understanding the struggles of debt: Household debt is often portrayed as a consequence of poor financial management and overzealous spending patterns. To a large extent however, the financial vulnerability of these household comes from the volatility of the financial system and their high dependence on favourable macroprudential outcomes (Mulder 2018). The lack of control and high reactivity to shocks in macroeconomic policy highlights a key feature of what makes the indebted a vulnerable group.

With direct links to addiction and homelessness, contingent money matters are at the core of many vulnerabilities and pose important repercussions for other struggling groups. Education and support at preliminary stages are therefore a key responsibility in aiding and controlling the damaging effects of this struggle.

References:

ING (2018). “Zeidy found her way out of debt.” ING. At https://www.ing.com/Newsroom/All-news/Zeidy-found-her-way-out-of-debt.htm.

Mulder, N. (2018). “A New Dutch Disease? Private Debt in The Netherlands.” Private Debt Project. At https://privatedebtproject.org/view-articles.php?A-New-Dutch-Disease-Private-Debt-in-the-Netherlands-22.

NBB (2016). “Press release – The distribution of household wealth in belgium: Initial findings of the second wave of the household finance and consumption.” National Bank of Belgium. At https://www.nbb.be/en/articles/press-release-distribution-household-wealth-belgium-initial-findings-second-wave-household

OECD (2016). “Income inequality.”OECD Data. At https://data.oecd.org/inequality/income-inequality.htm.

OECD (2018). “Inequalities in Household Wealth across OECD Countries: Evidence from the OECD Wealth Distribution Database.” OECD Data. At https://www.oecd.org/officialdocuments/publicdisplaydocumentpdf/cote=SDD/DOC(2018)1&docLanguage=En.

WSI (2016). “Wealth distribution in Germany.” Hans Böckler Stiftung. At https://www.boeckler.de/wsi_110321.htm.

Macquarie, R. (2017). “What’s the difference between wealth inequality and income inequality, and why does it matter?.” Positive Money. At https://positivemoney.org/2017/10/wealth-inequality/.

Kopp, C. (2010). “How income inequality works.” Investopedia. At https://www.investopedia.com/terms/i/income-inequality.asp.