Breaking the cycle: financial literacy and indebtedness in the Czech Republic

Julie Svarovská

Student in the Master's in Professional and Business Communication program 

Excessive indebtedness is perceived as a significant problem in almost all countries in the European Union.

Excessive indebtedness is perceived as a significant problem in almost all countries in the European Union. Serious debt can cause social exclusion, contribute to health and other social problems, and threaten the basic needs of children.

Moreover, debt of this kind is extremely difficult to recover from. In the Czech Republic alone, almost 1 million people are currently subject to debt collection, and there are more than 4.3 million active writs of execution. The social impact of debt is huge – alcoholism, drug abuse, housing repossession, and criminality – while the economic consequences include labour market disruption, reduced tax revenue and increased social assistance costs. Moreover, employing indebted employees causes an extensive administrative agenda for employers, resulting in extra labour costs. 

As the writs of execution accumulate, debtors all too often find themselves falling into an uncontrollable debt spiral. Serious indebtedness can have complex causes: in addition to objective causes such as unemployment, there are serious systematic issues including extremely expensive collection processes (the Czech Republic has the highest collection costs in the EU) widespread predatory lending, and an expanding black market for debt. The situation is exacerbated by the large number of non-banking institutions that provide loans with extremely high interest, resulting in devastating penalties and fines that prey on the debtors’ despair and lack of information. As debtors rob Peter to pay Paul, they accumulate more and more individual debts.  

I have decided to work on this problem for the research practicum component of the La Salle Master’s program in Professional and Business Communication, in cooperation with Radek Habl, a former finance manager at IBM.  Our plan is to create a specialized curriculum of financial literacy, to help prevent and resolve debt spirals and expose abusive lending practices, and to then provide this curriculum to companies, educational institutions and individuals. One major challenge that we face is a lack of detailed quantitative and qualitative data about indebtedness which would help to increase public awareness and targeting the right audiences with the right preventive programs, and potentially pave the way for appropriate legislative changes. Ideally, we would like to get educational institutions involved, so that we can teach young people to avoid debt from the start.

If companies were to take responsibility for the financial literacy of their employees, we could cure the debt epidemic – and the societal ills associated with it.  With high-quality data, customized prevention programs, a better-regulated non-banking lending market, more help for debtors from non-profit organizations, and an overall improvement in financial literacy supported by all stakeholders, we may see positive changes in the level of excessive indebtedness in the Czech Republic. 

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