Estonian ministry: Change in way of thinking is needed to reduce debtor numbers

TALLINN – According to the Estonian Chamber of Enforcement Agents and Trustees in Bankruptcy, at the end of last year there were more than 100,000 people in Estonia who were in default on their financial obligations, and the number is rather growing.

Marge Aasalaid, financial wisdom coordinator at the Finance Ministry, says this indicates a relatively serious problem in society, the solution of which requires both individual and systemic changes.

"In general, the reason for defaulting is low level of financial literacy. Even if there is knowledge, then decisions are made on the basis of desires. In this way, people live in the moment and often beyond their means, do not plan their finances, and do not have a longer view. Fines or bills not be paid on time can eventually lead to a debt spiral, and there are also many people who have fallen victim to fraud of late," Aasalaid writes on the ministry's blog.

Over-indebtedness is not always related to reckless borrowing, she said. The common denominator for the various reasons, however, is the need to raise awareness and increase personal responsibility. According to the official, the main issue in improving financial literacy is how to raise awareness in such a way that a person develops the ability to analyze and take responsibility when making decisions.

"For example, the following rule generally applies when purchasing items on installment: if the monthly payments are affordable, it is actually entirely feasible to save the necessary amount before making the purchase. When buying on installment, people believe in the stability of their job and salary, but they usually do not consider that their financial capability may change. Every installment purchase is essentially a debt, and it is the debtor's own responsibility; the seller or the lender cannot be held responsible for it," she stressed.

The debt counseling service is available in Estonia as an ex-post measure, but unfortunately, people often turn to it only when the situation has already become critical and escaping the debt spiral is extremely difficult.

According to experts, the long-awaited positive credit register, currently under development and expected to be operational by 2028, could bring a turning point in addressing the issue of over-indebtedness. The register will provide both lenders and loan applicants with a better overview of existing obligations and help avoid taking on new, overwhelming obligations.