Problem debt: awareness and help

A third of the households in the Netherlands struggle to get by. More than 1.3 million households have difficulty paying their bills. While most of these issues are kept behind closed doors, problem debt in fact represents a big problem for society. ABN AMRO offers an app, financial awareness reports and Financial Grip Coaches to help prevent and overcome debt problems.

What is the greatest misconception about problem debt? ABN AMRO’s François van Heugten, Director of Daily Banking, with responsibility for Credit Management and the Financial Grip Coaches, has a straightforward answer to that question: “Believing that it could never happen to you,” he says.

Debt as a feature of society

People from every corner of society have problems with debt. “We’re a prosperous country, but we’re still vulnerable,” François explains. “Most households don’t have any contingency for when things go wrong. Even people with good jobs and a fancy education can find themselves in financial difficulties before they know what’s hit them.”

François has seen the Dutch attitude towards household finances change in recent years. “The Dutch used to have a piggy bank for everything. They only borrowed money if they had no other option. It wasn’t so long ago that the Dutch thought Americans strange for making so many of their large purchases on credit, for example. Nowadays that’s common here too. Countless new forms of ‘hidden loans’ have emerged that cause hidden debt, as well: for example the loan for a new mobile phone that’s hidden in the cost of your subscription. It’s not a bad thing to borrow money, of course not, but you need to think carefully about what you’re doing.”

Silent assassin

On top of this, according to his colleague Hans Faas, Director Special Clients, money is becoming less and less visible as cash transactions disappear. “Back in the day, if the money was gone, it was gone. Coins and bank notes are tangible and you can see them actually leaving your wallet. Nowadays digital transactions are credited to or debited from your account automatically. This means that you need to discipline yourself to check your Internet and mobile banking systems regularly.”

François describes problem debt as a ‘silent assassin’: in most cases it does not appear out of the blue, but builds up gradually and sometimes without being seen. “It starts with one bill or payment reminder, and you end up going further into debt just to pay off your existing debts, while the terms become worse and worse all the time. It just spirals down from there.”

Problem debt is a big problem for society. Although it is the debtor who has to pay the bills, society also suffers: people with problem debt often suffer from health issues, such as depression; they soon have domestic problems; and they spend long periods living on social security. The cost for society is estimated to be at least 1 billion euros per year. Nevertheless, debt is still a taboo subject: it takes five years on average before someone with problems seeks professional help, and by that time it is often too late to find a solution. 

Financial awareness

That is why ABN AMRO is working to prevent matters from deteriorating to that point. The bank offers a number of services to help its clients, including Grip (a digital app for their household accounts), free personal financial awareness reports and Financial Grip Coaches. Hans explains why the bank has taken on this role: “Financial problems are at the heart of our expertise, which is to provide financial awareness and advice. On top of that, since we have millions of clients, we can make a big contribution towards solving this social problem.”

Hans has applied for a financial awareness report for himself too, and he advises everyone to do the same. “The report costs you nothing, and it helps you to understand your personal financial situation. It highlights potential problem areas, such income after a household member’s retirement or death.”

Financial coaching

While the basic approach is to prevent problems, they cannot always be avoided. That is why ABN AMRO works with Financial Grip Coaches: certified budget coaches, to help clients who are having trouble paying off their debts by themselves.
 
A client who wants help from a Financial Grip Coach enters a coaching process. These coaches help clients to understand what their income is and what they are spending, and coach them to take steps to cut their costs and/or increase their income. 
 
Grip Coaches have helped more than 40,000 of ABN AMRO’s clients in recent years. The success rate is high: three quarters of the clients have managed to get their finances back on track. Around 10,000 clients required additional measures, such as rescheduling or a temporary suspension of repayments. Only in a few hundred cases has the process not worked, and those clients generally find their way into the programmes that their municipal authorities offer for help with problem debt.
 
That is why it is such a good idea, Hans and François believe, to identify and anticipate possible debt problems at an early stage. “Financial problems can hit anyone. We believe that banks can play an important part in helping to overcome those problems, and that is help that ABN AMRO is eager to provide.”