Seduced by adverts and special offers, Swiss youngsters are increasingly getting caught in debt traps. But the cantons appear to be taking the bull by the horns and targeting the problem with prevention courses in schools.
Speaking to a class of second-year apprentices at the Centre for Professional Training in Moutier, canton Bern, Karim Bortolussi reveals some startling figures.
“One in five young people are confronted by financial difficulties and more than 80% of those who use our services have racked up their first debt by the age of 25,” explains the social worker from the Bern-Jura Protestant Social Centre (CSP).
Today's group consists of future mechanics and restaurant managers aged between 17-25. Financed by canton Bern, the prevention course focuses on giving practical advice: setting a budget, looking at how health insurance, taxes and different contracts work (mobile phones, gym, leasing schemes), the cost of loans and the pitfalls of credit cards and client loyalty schemes.
It also covers how easy it is to fall into the spiral of debt and how hard it is to escape.
“Never take out a loan to pay off another,” warns Bortolussi.
Selling a dream
In the class it soon becomes clear who the students are who prize material goods over financial cautiousness.
“Leasing enables you to buy a new car and pay for it later,” says one young man.
But Bortolussi answers: “With a leasing they are selling you a dream. It’s better to buy a car with a loan - at least it will belong to you and you can sell it later if you get into financial trouble. But obviously it’s always preferable to buy something with cash, which is real.”
Jacques Stämpfli, a teacher of general culture, is impressed by the course content which is “delivered without judgement or moral discourse”. Stämpfli says the apprentices lead busy and intense lives, like many students.
“But several of them put too much emphasis on appearance, on having the latest mobile phone or nice car. And commercial enticements are more and more common,” he adds.
Leaving the family nest and entering the world of employment can sometimes be tricky. And gaining an apprentice certificate is not always synonymous with earning a high salary. According to a recent study by Geneva University’s Employment Observatory, 10% of the workforce who have benefitted from an apprenticeship earn monthly salaries of less than CHF3,989 ($4,300) before tax, defined by the Federal Statistics Office as the low salary threshold.
“Young adults often have a tendency to overestimate their revenue. At the same time, publicity gives them the impression that everything is affordable,” says Bortolussi.
The Swiss and debt
There is very little data available detailing the extent of private debt held in Switzerland. According to a 2008 European study by the Federal Statistics Office (FSO), 18% of Swiss residents live in a household that has at least one debt or loan (excluding mortgages).
Almost 8% of the population, or 570,000 people, live in households holding large overdrafts. The number of prosecutions is constantly on the rise, according to the FSO, regardless of whether it is private debt or debt incurred through a company.
Each year health insurers count for some one million prosecutions worth around CHF1 billion, a figure which has increased by 30% over five years, according to Santesuisse, an umbrella organisation for hearth insurers cited by the Swiss News Agency.
According to Swiss Debt Advice, the umbrella organisation for debt relief services, the number of households and the average level of debt requiring intervention continue to rise. Single-parent families, families with three children or more, the unemployed and foreigners are the most vulnerable.
Reaching the vulnerable
In an anonymous questionnaire filled out at the end of the course, some 15-20% of attendees admit to already being in debt, often with one of their entourage. Small debts that can seem like nothing at first, but which can quickly spiral out of control.
“These people first try to get out of trouble themselves, by taking out another loan or contacting private loan companies which have very high interest rates. When they contact us after several years, their situation is often very bad,” says Bortolussi.
For Sébastien Mercier, a lawyer with Caritas and a committee member of the Swiss Debt Advice, an umbrella organisation for 40 cantonal and communal debt relief services, prevention measures in schools are essential but still insufficient.
“We need to reach more of the unemployed, single parent families and young people who are targeted by commercial advertising,” Mercier says. “But also migrants, who often have little revenue and extra financial pressures because they often have to send money regularly back to their families.”
But the need to reinforce prevention often clashes with budgetary constraints of the cantons and communes. And at a national level, a majority of liberal parliamentarians remain unconvinced of the need for further regulation in this area – arguing instead for values of individual responsibility and economic freedom.
In June, the House of Representatives voted down a proposal to impose a tax on creditors to finance prevention efforts, as is the case with casinos and gambling addiction measures. The same arguments were put forward recently to reject stronger youth prevention measures during the revision of alcohol laws.
In its position published online, the Swiss Association of Banks of Credit and Financial Establishments (ASBCEF) opposes various initiatives that aim to reign in the consumer credit market.
On one hand, the federal law on consumer credit is one of the strictest in Europe. On the other, the level of consumer credit as measured as a percentage of GDP in Switzerland is well below those of the country’s European neighbours, according to the association.
In total, new consumer debt opened in 2012 levelled out at CHF7.68 billion, a decline of 2% compared with 2011. Leasing contracts also decreased 2% to CHF7.96 billion.
According to Heinz Hofer, the association’s president, young people today are less indebted than their elders – 4% of young adults aged 18-24 hold consumer credits, compared with 8.5% of Swiss aged 18-65.
“Any new rules applying to this market, which in our view works well, is useless and mistaken,” says Hofer.
"Wasting our breath"
“In a country that gives lots of space to banks and credit businesses, we sometimes feel we are wasting our breath,” says Mercier, who believes excessive debt is “a problem people don’t want to see” in Switzerland.
“All our services helping people reduce their debt levels are overworked. The phenomenon is particularly pronounced in French- and Italian-speaking Switzerland,” he says.
Back in class, the apprentices are taking part in workshops where they are explaining their attraction to well-known brands. Sometimes the sessions can help change the views of even the most sceptical.
“I’m shocked to realise how easy it is to get into debt. It will make me more careful,” says one student.
“It was very interesting, but I want to know more,” says another.
“I’m a little anxious at the idea of having to manage all this,” says a third.
Bortolussi says the course and other support services also serve to encourage discussion at home.
“Several times parents of students have sought help from our services on the advice of their children,” he says.