Inside Story

More than a third of Israeli households spend more than they earn, as living costs rise

Around 2.5 million Israelis are overdrawing their accounts, struggling to make ends meet, while banks reap record profits from extending credit lines and charging high interest

Sharon Wrobel is a tech reporter for The Times of Israel.

Illustration: Israelis withdraw money from Bank Hapoalim cash machines. (Yonatan Sindel/Flash90)
Illustration: Israelis withdraw money from Bank Hapoalim cash machines. (Yonatan Sindel/Flash90)

More than one-third of Israeli households spend thousands of shekels more than their monthly incomes allow and cannot make ends meet, as they struggle with a series of tax and price hikes during the ongoing war, while interest rates remain high.

An estimated 2.5 million Israeli households are overdrawn in their bank accounts, or about 39% of the population in Israel over the age of 18 as of April 2024, according to data by Fresh Start, an Israeli non-profit organization that assists highly indebted households and businesses.

The latest Bank of Israel data released this week showed that Israeli banks charged households with accounts in overdrafts a steep 12.7% interest on average in November 2024, up from an average 11% at the end of 2023. That compares with an average 9% interest households were paying on consumer credit loans. Overdrafts of Israeli citizens reached NIS 9.75 billion ($2.7 billion) as of the end of November, according to the data.

Meanwhile, the average interest Israeli banks pay on shekel deposits ranges between 3.5% to 4% on average. The wide gap leads to the public paying very high interest rates on their debt, and it is deepening the personal finance troubles of households. As a result, thousands of families in Israel spend more than they earn, and fall into an economic trap of high interest rates and an inability to pay off the debt.

Israelis shop at the Dizengoff Center shopping mall on Dizengoff Street in Tel Aviv, March 20, 2024. (Miriam Alster/ FLASH90)

“Over the past month, we were approached by about 1,200 families who are drowning in debt, which is about double the number we saw before the start of the war [in October 2023],” Sharon Levin, director of Communications and Public Affairs at Paamonim, a non-profit organization that provides financial guidance and assistance to debt-stricken households, told The Times of Israel. “Many households take out more loans while still in overdraft, struggling to break the debt cycle as interest rate costs remain high, and the war displaced families from communities, and many are called up on reserve duty.”

“Since the outbreak of war, debt repayment costs have increased by an average of about NIS 1,500 a year per household,” Levin estimated.

Sharon Levin, director of Communications and Public Affairs at non-profit Paamonim. (Courtesy)

The average debt of the families coming to the organization has been growing reaching an average of around NIS 100,000 to NIS 120,000, Levin said adding that the organization assists households with the mismanagement of their finances to bring them on a path of rehabilitation.

“Even before the war, the average cost of monthly mortgage payments went up by NIS 800 to NIS 1,200, due to a steady rise in interest rates about two years ago,” Levin said.

Israel’s top lenders, including Bank Hapoalim and Bank Leumi, have posted record net profits over the past two years, as high interest rates and rising inflation boosted financing income and helped credit and loan operations flourish, while repayment costs for mortgage holders have ballooned, adding to the country’s already high cost of living.

From mid-2022 to 2023, the Bank of Israel increased the interest rate from 0.10% to 4.75%, which allowed banks to hike rates for borrowers and rapidly increase the costs of mortgage holders.

During the war, the central bank cut borrowing costs only once in January 2024, as the inflation environment remained high. Interest rates have remained at 4.5%, burdening households and businesses as the economy is getting battered.

“Interest rates are high, basic household expenses are more expensive because of price hikes and tax increases, while income has remained the same,” said Tomer Rabinowicz, a bankruptcy lawyer and the founder of Fresh Start, which provides legal advice and mentorship to help households and businesses recover from their debt.

The country’s lenders have come under fierce scrutiny for reaping record profits from high interest rates on mortgage, loan, and overdraft debt while being slow to offer the public fair interest-bearing deposits held in customers’ checking accounts.

Tomer Rabinowicz, founder of Fresh Start, a non-profit organization that provides legal advice and mentorship to indebted households and businesses. (Courtesy)

Bank of Israel governor Prof. Amir Yaron has lamented the wide gap between what the banks earn on providing consumer credit and what they pay out for deposits held in checking accounts, as the central bank hiked interest rates in recent years.

“The banks are making billions of shekels in profits while businesses are collapsing during the war because of military call-up and the fast evacuation of citizens – this is not fair,” said Rabinowicz. “The Bank of Israel should instruct the country’s lenders that they have a responsibility not only to maintain their financial stability, but also for their clients by, for example, supervising the percentage of the most dangerous loans.”

“With correct intervention, you can save highly indebted businesses and households and this is what the government should invest in, including financial education, guidance and mentorship, rather than giving them more loans,” he argued.

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