The amount of people in debt in Sweden has steadily decreased, but the severity of debts has simultaneously been getting worse. Household indebtedness has continued to rise, and the number of debt restructurings tripled between 2010 and 2020. Consequently, Sustainable Finance Lab has decided to, together with Klarna, examine the consumer credit market and to study the rising issue of over-indebtedness.
The research project will extend over a four-year period and aims to identify the challenges of the Swedish consumer credit market. Furthermore, the project sets out to propose viable solutions to remedy these challenges. To succeed, the project’s researchers will employ economic and behavioral theories, as well as gender studies which look closer at how those aspects influence consumer decisions. They will also strive to identify systematic characteristics of behavior which may cause borrowers to take on too much debt, to select costly credit, as well as other corresponding factors that may act against the borrower’s real interest.
The research will also study the supply side of credit, and how product design can contribute to poor borrower decisions, and to what extent lenders underprice lending. The insights generated will aid in the development of a more in-depth understanding of the underlying causes of the issues affecting the consumer credit market and give an indication of the extent of the social and economic costs they entail, and provide entrenched arguments for new regulatory reforms and better industry practices that will contribute to a more sustainable consumer credit market.
Klarna as an industry partner will contribute data, market ‘know-how’ and industry expertise.
There is a lack of knowledge on what is driving borrowes to take on debts that they cannot afford. There is more at stake than the money loaned. Financial distress of a single person can generate negative social and economic spillovers that go beyond debt write-off including poor health, psychological stress and suicides, negative outcomes for children, and other negative social impacts which are real but harder to quantify. My hope is that this research can help identify the underlying drivers and market failures and help support better industry practice and regulatory reform.
– Dr. Mark Sanctuary, SFL Vice-director