New KSV study

Overconfidence increasingly leads to ruin

People are increasingly overestimating their financial capacity.

(Bild: stock.adobe.com/Geber86)

The creditors' protection association KSV1870 has looked into the causes of personal insolvencies. According to the association's analysis, the most common reason for bankruptcy in the previous year was "personal fault" due to a "permanent overestimation of one's own financial capacity". 

With 8845 debt settlement proceedings opened in 2023, there were a good 8 percent more than in the previous year. "A persistently high cost level and continued high inflation also presented Austria's private households with major financial challenges in 2023," says KSV expert Karlheinz Götze.

According to KSV, 28.6 percent of these private bankruptcies were due to overestimation (2022: 28.1 percent). In turn, around a quarter of personal insolvencies are attributable to the formerly self-employed. The most prominent representative of these private bankruptcies last year was probably the former investor René Benko.

Covid hardly detectable anymore
Financial corona after-effects (0.9%), on the other hand, do not play a relevant role. It is now demonstrable that Covid has not led to more private bankruptcies.

"We know from experience that people are much more careful with their finances in times of crisis," says Götze. "Nevertheless, in 2023, almost 30 percent of people consistently spent more than they had available." Young people in particular often live beyond their means.

Youthful recklessness leads to bankruptcies
In the age group up to 25 years, KSV attributes a good third (34%) of cases to overestimating one's own abilities, while the figure for 25 to 40-year-olds is 31%. As in the previous year's survey, these two age groups are above the Austrian average. "The high level of debt among young people - primarily due to consumption - is a very worrying trend," says Götze.

Bankruptcy factors

Other reasons for personal bankruptcies are:

• "Reduction in income" (17.8 percent)
• "Life crises" (12.3 percent)
• "Personal problems" (8.6 percent)
• "Burdens from the family" (6.4 percent)

There are people in every age category who have lost track of their financial resources. But: "However, this happens more often among young people, which is also due to a lack of understanding of finances." Financial education needs to be more firmly anchored in the curriculum. KSV itself runs a number of programs in this area.

Based on the results of the study, KSV advocates a return to a debt relief period of five years. At present, three years is also possible. For the time being, this is limited until 2026. "We believe that the repayment plan for private individuals has lost its justification," says Götze.

KSV sees devaluation of debts
"In practice, we also see that it is now very easy for indebted people to get rid of their debts relatively quickly, even though 'personal fault' is the dominant cause of insolvency." KSV also believes that there are too many payment plan offers with zero percent. "As a result, both the average payment plan offers and the rates actually concluded have deteriorated noticeably - to the detriment of creditors."

If the current regulation remains in place beyond the 2026 time limit, there is an increasing risk that private individuals will take debts lightly due to the quick debt relief option. In KSV's view, this increase in "personal fault" as the number one cause should not be the case.