MercoPress. South Atlantic News Agency

Brazilian new middle class pay their bills and like to keep their names clean

Daniel Plá, Professor of retail sales at the Getúlio Vargas Foundation

Brazil National Confederation of Store Managers, CNLD, and the Credit Protection Service, SPC, report that payment delinquency was down 5.6% in July. At the same time the two organizations revealed that over the last five years indebtedness in Brazil has risen 20% annually.

According to Daniel Plá, Professor of retail sales at the Getúlio Vargas Foundation, the recent reduction in payment delinquency is due almost entirely to the so-called new middle class.

“These are people who have risen to what we call the new middle class in the last three years and they are people with lower incomes who are concerned with maintaining a good credit rating and keeping their name clean. In other words, they pay their bills on time,” explained Plá.

“On the other hand, people in higher income brackets have practically exhausted their ability to handle more debt and when they are delinquent prefer to take the matter to court.”

Plá points out the appearance of a double effect: at one end of the equation, banks are more cautious about making new loans and at the other end consumers are weary of new loans as well. “These are all factors that reduce delinquency,” he says.

But Plá also admitted that the power of the hard sell cannot be underestimated. “The consumer is often taken in by supposedly special sales for limited periods of time with low monthly payments. The instalment payments don't fit the consumer's pocketbook,” he says.

One villain in this story is the new automobile in many small instalments. “The monthly payments weigh on family indebtedness heavily, and even more heavily as time go by. In order to continue making the payments these families are forced to cut other outlays,” says Plá.

In July there was a drop in retail sales of 0.28%, compared to July 2011. “People are being affected by the crisis in Europe, sort of unconsciously. Spending rises when people are optimistic. What we see now is a fear of losing one's job or having something like what is happening in Europe take place in Brazil. Indebtedness forces a reduction in consumption. There are high levels of indebtedness out there,” concludes Plá.