Menu
Share
 
Switch to Desktop Site

Brazil's growing middle class debt

(Read article summary)
About these ads

• A version of this post ran on the author's blog, Riogringa. The views expressed are the author's own.

Consumer debt continues to grow in Brazil, a result of ample credit and continued consumption despite a slowing economy. What exactly is going on, and how does this augur for the new middle class?

According to Serasa Experian, many of those accessing new credit are from the emerging middle class. In 2011, around 9 million Brazilians received credit for the first time. Many are under the age of 35, part of the so-called Generation Y looking to buy a car or smartphone. Credit growth was especially strong in retail stores outside of major cities, with rising credit in the North and Northeast. But some are finding they've bitten off more than they can chew. The new middle class has a high debt burden, a June study by FGV found. Nearly a quarter of those who earned up to $1,030 and nearly a quarter of those who earned between $1,30 and $2,360 a month said they spend at least half of their salary to pay off debt.

Debt among the middle class is on the rise, recent numbers indicate. In May, debt defaults from businesses and consumers hit record levels. Overall consumer defaults hit a 30-month high. Credit card defaults rose to nearly 30 percent, amounting to an estimated $10.8 billion in unpaid charges. Car defaults hit 6.1 percent. Business debt defaults rose 17.5 percent from January to May over the same period last year. Though interest rates are at record lows, they're still significant – at 32.9 percent in May. Some credit cards even charge interest rates of up to 200 percent a year. It's not clear if consumption trends will continue. Some economists say in spite of slower growth, consumption will remain strong. Other economists point to slowing car sales as evidence of slowing consumption. Credit debt should slow, others say.

A credit bubble may not be an immediate concern. But credit debt has important implications for the new middle class, as some observers point out debt could be an issue in the long-term future for this group. It makes sense: debt could be the defining factor of whether families can maintain an improved standard of living, continue an upward trajectory, or slide backwards. Consumer debt, ultimately, could define what the new middle class will look like in a decade, and maybe even define the country's economic future in years to come.

Bonus: A new documentary looking at the new middle class premiered on Brazilian TV last month. Família Braz - Dois Tempos was co-directed by star Brazilian journalist Dorrit Harazim and Arthur Fontes and follows a new middle class family over ten years.

Rachel Glickhouse is the author of the blog Riogringa.com.


Follow Stories Like This
Get the Monitor stories you care about delivered to your inbox.

Loading...