By Ben Tavener, Senior Contributing Reporter
RIO DE JANEIRO, BRAZIL – Some 58.2 percent of Brazilians use their monthly salary to pay off “installment debt,” according to a new survey by the Instituto Brasileiro de Economia (Brazilian Institute of Economics, Ibre-FGV). Yet the survey also showed most debts were short-term: 78.4 percent had installment repayment plans of six months or less, and only 10.1 percent had taken out plans for twelve months or more.
Those living in Brazil will know the scenario: an unbelievably low price is displayed in a shop, with a “10x” next to it, meaning a buyer pays in ten installments of that value, sometimes with a down payment.
“Parcelamento” – “paying by installment” – is Brazil’s preferred way of making expensive purchases, and sellers’ favorite way of convincing people they can afford them.
From TVs to airline flights, shoppers can nearly always divide the cost into more manageable chunks, and although sometimes available at no extra cost, customers often end up paying more for the installment option, usually in five to ten monthly payments.
According to the survey by Ibre-FGV, 29.2 percent of those surveyed channeled ten percent or less of their income towards paying off installment debt; 24.8 percent used between eleven and fifty percent of their wages, O Globo newspaper reports.
The study also shows that 3.3 percent of those surveyed divert over half their earnings to pay for these debts, and in 0.9 percent of cases the payments exceeded their income. Families with less disposable income opt for this method most often.
However, Ibre-FGV economist Viviane Seda, who coordinated the survey, explains that the results do have a positive aspect:
“We realized that nearly eighty percent of those surveyed have short-term debt – less than six months. This appears to be favorable [for the economy] as it is something that can be finished quickly, so they can start spending again.”
Mother-of-two Elisangela explains why she takes advantage of paying in installments: “When buying things like domestic appliances it’s the only viable option for getting things quickly,” she tells The Rio Times, adding: ”At the time of purchase, as with most Brazilians, the only concern I have is whether I can afford the monthly payments.”
Financial experts say it is unsurprising that Brazilians opt to pay by installment, given the excruciatingly high rates levied on credit cards in Brazil.
Most credit cards available to Brazilians come with APRs (Annual Percentage Rates) starting at a staggering 150 percent, compared to fifteen or 25 percent typically charged by credit cards in the U.S. or the UK. A survey by ProTeste showed that Brazilian credit card holders are regularly charged interest at over 320 percent APR.
But UFPR economist Professor Luiz Esteves says the government’s intentional policy of encouraging families to spend and increase their household debt has been important in getting Brazil through the global economic downturn:
“The policy worked extremely well during the difficult situation the global economy was going through, and at the time it was not the wrong decision. But the mistake now is in insisting on continuing with the policy for a longer period of time – something that cannot hold indefinitely,” he explains to The Rio Times.