One city in the Netherlands is trying out one weird trick to alleviate the debt of its downtrodden citizens: paying it off for them.
Driving the news: The Dutch city of Arnhem is launching an unorthodox debt cancellation pilot. Over the next two years, four different charities will cover the debts of 40 to 60 of the city’s poorest families, no strings attached, with the government only paying for project costs.
- The pilot is based on the idea that it makes more economic sense to simply pay off debts rather than keep debtors toiling in them.
- One study in 2018 estimated that it cost the Netherlands €17 billion to deal with the impacts caused by families collectively dealing with €3 billion to €3.5 billion of debt.
Why it matters: Household debt has risen rapidly worldwide over the past decade, reaching US$59.3 trillion last year, as total debt hit a new record high. Excess debt can sow turmoil in the world economy in the long run by sinking consumption and destabilizing banking systems.
In Canada: Household debt surpassed the nation’s GDP early last year and hasn’t slowed down since, reaching a total of CA$2.45 trillion last year. With elevated interest rates, higher mortgages, and an increased use of credit cards, Canadians are set to keep paying off debt.
- Lower-income Canadians are the most vulnerable to these developments. In the third quarter of 2023, net savings were down ~10% year over year for the lowest earners.
Big picture: The global household debt issue has sparked talks about radical approaches to debt relief. Some economists even argue for supercharging Arnhem’s strategy to an all-out “debt jubilee” — the ancient practice of erasing all debts — though others think that’s a bit much.—QH