Consumer debt in Luxembourg and the euro area: Evidence from the Household Finance and Consumption Survey

On average, consumer debt per household is twice as high in Luxembourg as in the euro area. Among lower-income households, consumer debt is even three times higher in Luxembourg. However, since incomes are also higher in Luxembourg, the ratio of consumer debt to gross income is comparable in Luxembourg and the euro area. This paper uses household survey data to compare the prevalence of consumer debt in Luxembourg and the euro area. It focuses on the two major components of consumer debt, install-ment loans and credit card debt, linking the probability of contracting these types of debt to individual household socio-economic characteristics. In the euro area, households with mortgage debt are more likely to take out con-sumer debt, highlighting the need to better understand this behavior and its potential link to financial vulnerability. Credit cards, instead, are more common in Luxembourg than in the euro area, but the share of households holding credit card debt is similar. Many euro area households that hold credit card debt also hold liquid assets, often in amounts sufficient to repay this debt. Credit constraints and differences in individual risk preferences may help to explain this otherwise puzzling behavior.
Jel Codes: G51; D14; D91; E21; G02
Keywords: household finance - consumer debt - installment loans - credit cards