It all started out so promisingly. She was young, still in her teens, and she'd landed her first job. As is the custom in Brazil, to get your salary you have to open an account with the bank the company deals with — and with that new account came the woman's first credit card.
"The banks say, 'I want to help you,' " she says. "And if you have a credit card, it's a status symbol, you are well-regarded."
She switched jobs. That company dealt with another bank — which issued her another credit card. She got a store credit card, too.
"They always give you the incentive to spend," she says. "You say, 'I need 200 reais,' and they say, 'I'll give you 15,000.' "
It was all manageable — until she became unemployed. She lives with her mother and has no way to pay back the 6,000 reais — $2,600 — she owes on her cards. Her line of credit has been cut off, but the interest keeps mounting.
Because there is a lot of shame to being in debt, the woman asked to have her name withheld.
A Familiar Story
Her story is a familiar one to Americans who have a long history with credit and debt. In Brazil, though, the banks only really started giving easy credit about eight years ago. The country started booming, and a new consumer class was created, which in turn fueled growth.
But the rules were loose and the population financially illiterate. According to Reuters, consumers in Brazil pay the highest rates for credit card loans among the world's major economies; it can go up to 200 percent. If you get into trouble, unlike the U.S. where there is bankruptcy court, there is no way out. The young woman with the three credit cards has tried to resolve things on her own.
"I told them I need to eat; I need to help out with household expenses. But they don't want to know," she says. "I tried to deal with both banks, and I couldn't come to any agreements."
According to recent government figures, Brazilians are some of the most indebted people in the world. Slightly more than one-fifth of Brazilian household income goes to paying off credit cards and loans — compared to about 15 percent in the U.S.
And it doesn't help that products are pricey and people with credit buy in installments — everything from groceries to refrigerators can be bought in parcelas, or allotments, driving up monthly bills. Brazilians also like to spend with abandon; they are among the world's top consumers of beauty products and pet food, for example. Many fly to the U.S. simply to shop.
Teaching Adults About Money
The government has instituted a program that teaches financial literacy. In one such class, men and women of all ages take notes as the teacher explains compound interest.
"Credit has been democratized, after a push by the government. But many people weren't prepared to have access to so much credit. There was no financial education that came before the glut," says Diogenes Donizete Silva, who teaches the class for those in "superdebt." "So many of the people who come here are in debt out of ignorance. They don't know how a loan works, how a house or car is financed."
Consumption has been a huge driver of the Brazilian economy. But the boom years are over — just as they are fading in the other emerging markets that drove global growth for much of the past decade. Brazil's currency has lost ground against the dollar, inflation is near 6.5 percent and economists say the outlook isn't good.
"The market is so pessimistic, and I don't think they are overly pessimistic," says Roberto Dumas, who teaches international economics at Brazilian university INSPER. "I think they are pricing correctly Brazil now."
Dumas says he expects unemployment levels — and defaults — to rise.
"It's very likely that nonperforming loans are going to mushroom in Brazil," he says.
The Superindebted
Back at the superdebt class, a retiree explains how he's worked since he was a teenager and never had a problem. Then a family emergency forced him to take out a loan. More bad luck followed with an illness that meant he had to retire early. He now owes 60,000 reais on what had been a 10,000 reais loan. He's tried to negotiate with the bank to no avail.
With tears in his eyes, he says he's worked his whole life only to end up with nothing.
"Being in debt affects every part of your life," he says. "You start to have problems with your kids, with your wife, your health."
The issue has even engulfed his daughter, who was the original guarantor on the loan.
"It's become cultural now," he says. "Brazilians live on credit and we accept these crazy interest rates."
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