Poles in Debt 2023: An Analysis and Comparison

Taking into account the economic situation of Poland – a decrease in the real income of the population and the current recession – confirmed by the fall in GDP for the second quarter in a row – citizens remain quite optimistic. They willingly take out credits and loans for consumption purposes, buying new TV sets, refrigerators, washing machines, etc. Relatively often they decide to go into debt to buy a new or used car.

Although the number of bank loans granted decreased a little at the turn of 2022 and 2023, the total amount of debt fell by only 1% year-on-year.

Poles like cash loans because they do not involve complicated formalities (unlike mortgages) and can be used for any purpose. Although the maximum amount of such a liability – in accordance with the Consumer Credit Act – is PLN 255,550, and its repayment can last up to 10 years, in practice these sums are significantly lower. According to the data of the Polish Bank Association, approximately 90% of loans taken out in 2022 were amounts lower than PLN 50,000.

Although the number of cash loans, which are taken out annually by about 5 million people (some of them several times) – exceeds the number of mortgages (currently there are about 2.5 million of them), in the latter case the sum of liabilities is much higher. With an average mortgage value of PLN 350,000, the total debt is currently over PLN 500 billion.

Poles Are Far From Becoming Record Holders

How do we stack up against other countries? In 2022, the debt of Polish households amounted to less than 30% of GDP, which is half that of the eurozone countries, according to estimates from the Bank for International Settlements in Basel. In Europe, the Swiss remain the most indebted (nearly 130% of GDP).

As a rule, poorer countries or those in economic crisis can boast lower bank obligations of their citizens. In Argentina, for example, household debt is estimated at 4.4% of GDP. On the other hand, countries that have experienced a debt crisis, such as the United States after 2008, are recording lower and lower liabilities. The U.S. consumer debt level has fallen from over 100% to 75% of GDP. For comparison: in the middle of the 20th century it was 20% of GDP.

It is worth noting that although the amount of debt of citizens is correlated with the wealth of the country, it also results from cultural differences, lifestyle, etc. For example, in a republican, egalitarian Ireland, where GDP per capita is among the highest in Europe, household debt is 28%, and in the neighboring UK, with its colonial and class past, it is as high as 84%.

When we juxtapose the indebtedness of Poles with other Europeans, comparing the average debt with income, we again look quite modest. This indicator, i.e. the percentage value of average debt per household at the end of the year, divided by the sum of financial revenues in Poland amounts to 63%. In other words, it would take the average family less than two-thirds of the year (eight months) to pay off all of their debt. The average debt in the Czech Republic is slightly higher – it amounts to 70% of the so-called disposable income, and in Germany – 95%. According to this methodology – used, among others, by the OECD – the deepest in debt are the Scandinavians: Swedes (189%), Norwegians (239%) and Danes (282%). Economists explain this phenomenon with high social security and solid job guarantees of the Northern countries, and a higher creditworthiness of citizens is also important.

The Cautious Non-Affluent

A partial explanation of the moderate tendency of Poles to go into debt can be found in the data on the wealth of citizens. The enormous war damage and nearly half a century of the unproductive communist regime have made us a far cry from the richest. According to the research of a Swiss financial company Credit Suisse, the accumulated wealth of Poles was estimated at PLN 7.57 trillion, that is, about PLN 250,000 per adult citizen. However, closer to the truth about the real wealth of “the average Kowalski” is the median, i.e. the middle value (above and below this amount, there are the same number of people), which was estimated at PLN 100,000.

What was included in the assets? First of all, liquid assets, such as cash, deposits, stocks, bonds and other financial instruments. Add to that tangible property, such as houses, apartments, cars, valuables, etc. Debt: credits, loans and other liabilities were deducted from the estimated value.

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It is difficult to unambiguously assess the amount of wealth of Poles. On the one hand, it has grown almost five times since the beginning of the 21st century (in 2000, the average was less than PLN 60,000). On the other hand, it is still lower than in the case of Western neighbors and significantly lower than in the case of the USA.

The average wealth per adult resident of the Czech Republic exceeds PLN 300,000 (median – over PLN 100,000). In the case of Germany, the average is already over PLN 1.2 million. A poor consolation is that greater social inequalities in the country on the Rhine than in Poland reduce the median wealth to about PLN 250,000 (the average is raised by billionaires there).  However, because social inequalities are even greater across the Atlantic Ocean than in Western Europe, the median wealth of U.S. citizens is about PLN 300,000. Thus, it is only (sic!) three times higher than in the case of Poles.

The Debtor’s Self-Portrait

To equalize wealth differences and get closer to the richest countries, it would be necessary to use the borrowed money skillfully. So that they serve development, including personal growth (e.g. education), and not just consumption (e.g. another TV). At the same time, it should be remembered that the same object – such as a car – may meet pro-development goals (e.g. when it is used for gainful activity and is part of a business) or be an unnecessary consumption expense (e.g. when it is another vehicle in the family and is used occasionally).

According to the data of the Biuro Informacji Kredytowej (Credit Information Bureau), about 40% of Poles are currently paying off a loan, credit or other liability (e.g. payday loans). In this group, there are both people burdened with a mortgage of many thousand, as well as consumers paying installments for a refrigerator or microwave oven. Only 3% of them said they have a problem with settling them.

According to CBOS (Centre for Public Opinion Research) research from May 2023, people in their prime – in the age range of 25–54 (55% aged 25–34, 60% aged 35–44 and 52% aged 45–54), as well as those who are better educated (51% among people with college education compared to 22% among those with primary or lower secondary education) and those with the highest per capita income (52% in a household with per capita incomes of more than PLN 3,000) declare having debts with above average frequency. Problems with repayment of liabilities are most often declared by respondents with the lowest income (12% in the group with per capita income below PLN 1,000 compared to 3% among the totality of respondents).

Why do Poles go into debt? The most common reason is consumption – this is what 44% of respondents surveyed by IMAS International on commission of the Krajowy Rejestr Długów Biuro Informacji Gospodarczej (National Debt Register of the Economic Information Bureau) admitted. Other reasons are “financial problems” (29%) and “unforeseen expenses” (27%). These are not pro-development motives. Unfortunately, in more than half of the cases of indebtedness, Poles try to get out of life’s troubles thanks to borrowed money.

Another reason for incurring liabilities may be surprising – respondents mention “profitability of installments or credit.” Most likely, at least some of them were not able to calculate the total interest rate correctly, being suggested only by colorful advertisements. Finally, every twentieth respondent admitted that they go into debt because their earnings are “too low.” This is also a potentially dangerous situation because the debt must be repaid with interest…

Specific reasons for borrowing are as follows: purchase of electronics/household appliances (43%), purchase of a car or motor (28%), gift for a loved one (9%), and holiday expenses (8%). Only 7% of respondents admitted that they go into debt to cover education-related expenses; 6% of them borrow to pay for medical services. The above liabilities are usually financed with credits and short-term loans. About 16% of borrowers have long-term debts, related to the purchase of a house or apartment, with repayments spread over a dozen or more years.

How many Poles do not cope with timely payment of financial receivables? According to BIK data, over 2.8 million people, that is, about 18% of all debtors in the country, do not repay their credits or loans on time. The amount of outstanding liabilities exceeds PLN 80 billion. This represents approximately 12% of the value of all credits or loans granted.

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How Not To Fall Into a Credit Trap

Responsible management of household finances allows one to avoid wrong decisions, including unnecessary indebtedness. Contrary to appearances, gaining control over the budget is not that simple. This has long been understood in many countries and that is why the basics of economics at the subsequent stages of education, as well as the education of adult citizens, have been introduced.

It is worth recalling the basic rules that organize matters related to the household budget. First, one needs to be aware of one’s financial capabilities and try to balance expenses with income. In certain situations, it can be difficult – they need to have a well-prepared plan for repaying possible debt. Before committing, they need to compare the available offers and choose the most advantageous, not forgetting to check whether the financial institution and the services they use are reliable (warnings are published by the Polish Financial Supervision Authority).

Secondly, they should not sign documents whose meaning they do not understand (the client has the right to information) – they should ask questions, possibly consult someone close to them, an expert, etc. Thirdly, before signing a credit or loan agreement, they should have full knowledge of all costs (interest rate, commission, insurance, additional fees) and repayment schedule. Fourthly, if we even signed a contract, but it turned out that its terms are unfavorable – there is a possibility, according to the law, to withdraw from it within 14 days without giving reasons. All one has to do is make a declaration of withdrawal and return the money with interest for the time they owned it. The above rights are also granted in the case of contracts signed remotely, e.g. via the internet.

Obeying at least these few rules can protect from the debt loop, i.e. taking out more loans to pay off the previous ones. In the worst case – even if we lose control of our finances, we can still try to negotiate with our creditors. Banks or financial institutions are interested in recovering borrowed money and in many cases they meet their customers halfway, dividing outstanding liabilities into subsequent installments. However, it must be remembered that this is a painful method, paid for with long periods of sacrifice. Moreover: The sooner we try to solve the situation, the better, because over time the chances of getting out of this trouble diminish. The worst thing seems to be running away from creditors and the problem.

Moderation Above All Else

Credit is an integral part of the market economy. If it is skilfully used, it serves consumers, supporting the development of the country at the same time. With economic growth, the indebtedness of Poles will probably increase. The rule is that in richer countries households have higher obligations than in poorer countries.

For the time being, we can console ourselves with the fact that we are not as indebted as the citizens of the wealthiest countries. On the other hand – for people with significantly thinner wallets – we borrow a lot.

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Translation: Marcin Brański