What the Squid Game reveals about the problem of over-indebtedness, and why we should have structural answers to it

The South Korea-based smash hit Netflix series ‘Squid Game’ remains a viral success, suggesting that the overarching theme of debt-spawned desperation in an alternate dystopian reality resonates with viewers worldwide. In the first month after it’s release, an organic fandom launched the show to the number one spot in more than 90 countries, with some 142 million Netflix member views (67.8% of subscribers) worldwide. That’s equivalent to more than half of all reported cases of Covid-19 worldwide since the outbreak began. Reflecting on the show’s success, one executive said the secret ingredient is that viewers want to watch programming that “resonates with them,” where “they see themselves represented, they see their stories.”

Over-indebtedness is a worldwide rising phenomenon

In late October, the Bank of Korea raised a red flag over rising household costs and debts. South Korean’s price-to-income ratio, which indicates the cost of living, went up 1.13 times compared to the fourth quarter of last year.^[1] Left unchecked, this imbalance could cause a tsunami of household over-indebtedness and send the country into financial crisis mode.

At household level, personal insolvency processes can drag on for years, further compounding a person’s socioeconomic participation. On a national level, the buildup of “non-performing loans” on bank balance sheets can slow down lending activity, economic growth and erode confidence in the financial system. Similar spikes have hit the European Union, with Germany experiencing a 1.07 times increase in the price-to-income ratio over the same period. That deserves an equal amount of concern.

The role of credit malpractice

Taking out a loan in South Korea –- and finding yourself buried deeper by debt – is often compared to being as easy as buying a cup of coffee.^[2] The situation in Europe is not so different.

A recent Finance Watch study on malpractices in the EU consumer credit market reveals that predatory products like payday loans and buy-now-pay-later schemes form part of the problem. In both the on and offline markets, the practice of mis-selling and outrageously priced credit are abundant.

In 2019, 68.6% of EU credit consumers reported “medium” to “high” harm to their financial well-being when using credit. Before the pandemic struck, 7.2% of Europeans above age 16 were at risk of “drowning in debt” or becoming over-indebted. That figure correlates to roughly 26.9 million individuals, more than the entire population of Denmark, the Netherlands and Austria combined.^[3] Recovering from the coronavirus pandemic-imposed economic crisis requires putting the needs of these households – and the 22% of EU denizens at risk of poverty or social exclusion – at the heart of fit-for-future legislation.

Over-indebtedness: no niche problem

Without robust consumer protection and social infrastructure put into place, the risk of financial difficulty is left to chance. Anyone can be unlucky, but some have a greater disadvantage. With limited time and without adequate support, people who fall under the definition “working poor,” who oftentimes juggle multiple part-time jobs or manage a single-parent household, find themselves at a high risk of becoming over-indebted. Digging a bit deeper, 9.2 million single-parent families in Europe are headed by women. Alongside them in the high-risk category are immigrants and non-majority ethnicities, older folks who don’t have the skills or physical capability to participate in the job market, people living in rural areas with limited opportunities as well as the kids whose own parents struggle to get ahead. If you happen to be able to tick multiple boxes on this list, your chances of running into financial trouble only grow.

Profit structures for many modern day credit products, like short-term loans with high interest rates, incentivise irresponsible lending practices and prey on the financial misfortune of already vulnerable individuals. The average annual percentage rate (APR) of high-cost short-term credit –   by those on a low income – is a shocking 2,543%, though APRs as high as 30,341.% have been found.^[4] Low-income customers pay a relatively higher price to access the credit they might need to invest in personal development or fill temporary gaps in income.

The changing nature of work has pushed many into the “working poor”category. A more than 12% jump in part-time employment between 2008 and 2018 exemplifies that, so too the similar growth in gig or on-call work. Life events such as job loss, going through a separation or divorce, business failure, or an accident, illness or death in the family can also push people into an overwhelming debt spiral. How likely this will happen depends both upon the characteristics of a household and the social safety nets put into place at country level.

A way forward

We shouldn’t be surprised that the EU’s middle and lower classes can relate with characters playing a life or death game for a chance to repay their debt instead of returning to the regular grind of their daily lives.

Affordable housing, goods and public infrastructure like health care, child care and long-term care for dependent adults form critical components for resilience against being pushed into debt. Also crucial are accessible unemployment insurance, the duration of the program and the funds received. Once the situation has gone past the point of prevention, relief mechanisms must be there to ensure an individual’s capacity to be included, maintain their dignity, and participate in self-development that benefits both their families and society as a whole. Free and quality debt counselling along with fair and efficient insolvency procedures can help give individuals hope and a fresh start for the future.

To date, however, we witness a lack of EU standards or best practices for relieving household over-indebtedness and an imbalance between the rights or creditors to be repaid and the rights of debtors to live a life of dignity.

To rewrite the story, we need a unified voice and enduring effort. Civil society can write this script better by working together and more closely with policy makers to combat the problem through a consumer-centric revision of the Consumer Credit Directive and creation of EU level standards for personal insolvency procedures. Together we can put the odds in favor of EU consumers and financial stability.