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Japanese Charging Into Debt

The nation once famed for saving is now awash in plastic, and loans are available round-the-clock. The result: Consumer borrowing has tripled since 1985, and so have personal bankruptcies.


TOKYO — At 24, Miyuki, a sweet-faced bookworm, has just applied for bankruptcy protection.

Say sayonara to the stereotype of Japan as a nation of compulsive savers. An estimated 10% of the population--mostly young people--is deeply in debt.

Japan, where people once saved up for big purchases and then paid cash, has become a credit card society. A new generation of hard-charging Japanese, raised in one of the world's most affluent societies, is borrowing like never before--and some have a debt habit of dangerous proportions.

Miyuki will have plenty of company in bankruptcy court, a place where the Japanese traditionally have felt ashamed to set foot. Personal bankruptcies have tripled in the past decade, hitting a record of 43,946 last year.

For the Record
Los Angeles Times Saturday September 21, 1996 Home Edition Part A Page 3 Foreign Desk 1 inches; 33 words Type of Material: Correction
Japanese yen--A chart in Wednesday's Times incorrectly represented the changing value of the yen in recent years. The chart should have stated that the yen was approximately 200 to the U.S. dollar in 1985 and 100 to the dollar in 1994.

She insists that she is not extravagant. Unlike the young Japanese women nicknamed "Chanel-ites" for their penchant for pricey designer clothes, she arrived at work recently in a baggy seersucker shirt worn untucked over khaki pants and scruffy black athletic shoes. Lately, she has been skipping lunch to save money.

Three years ago, however, she borrowed about $4,700 to pay for a move--then borrowed more to repay the creditors she could not appease on her meager wages as a waitress in a noodle shop.

Borrowing too much was easy: She had a fistful of credit cards that allowed her to make withdrawals from cash machines at any time of the day or night. She says the lenders knew she was borrowing new cash to pay off old debts and kept on lending. Her debts compounded at Japan's maximum legal interest rate of 40% a year. Now she owes more than $28,000.

In the early 1990s, most people who declared bankruptcy were real estate speculators who went bust when the Japanese "bubble economy" popped, sending stock and property prices plunging.

Lately, these victims of asset deflation have been joined by other unfortunates: office workers who haven't trimmed their spending to match incomes squeezed by the nation's worst postwar recession; gamblers caught up in the pachinko (pinball) craze; and an increasing number of young people who now have unparalleled access to easy credit at interest rates that are anything but forgiving.

"Young people have much less resistance to borrowing money" than their Confucian-influenced elders, said economist Masaki Masuda of the Fujitsu Research Institute. " 'Play now, pay later' is the new philosophy."

Homemakers once fed their families fish and tofu, kept careful logs of every yen they spent and waited until the weather grew bitter before turning up the heat. Some older people retain these habits.

But consumer borrowing, to finance anything from designer clothes to restaurant bills, vacations abroad or even groceries, has tripled since 1985.

"A decade ago, credit cards were for people who traveled overseas a lot and for very rich people," said Kichizo Sakamoto, executive director of the Japan Credit Counseling Assn., which has fielded more than 40,000 calls from consumers in financial trouble.

Topping the U.S.

Not anymore. By 1994, the Japanese were carrying more than $6,000 per capita in consumer debt--even more than the average American, who owed $3,700, according to the Japan Credit Industry Assn. Japanese still save at three times the U.S. rate, although the savings rate has been steadily dropping, from 23.2% of disposable income in 1974 to 12.8% in 1994.

In industry surveys, 68% of those over 50 say they have never borrowed except for a housing mortgage. But overall, the percentage of non-borrowers has declined from 64% in 1990 to 56% this year.

As of 1994, the 124 million Japanese had more than 230 million credit cards, quadruple the number a decade earlier. Credit card purchases increased 7% last year despite the recession; spokespersons say it's because customers now whip out the plastic to pay small bills they would have used cash to settle a few years back. Even though most Japanese pay off their balances immediately, too many do so by borrowing from other sources--then borrowing again to meet the new debts.

In the postwar period, the government exhorted people to save more; thrift was not just a necessity but a national virtue. The legendary Japanese frugality helped build record trade surpluses, but with those came irritation from the rest of the world.

Some economists argue that increased spending benefits the country by pushing the domestic economy out of recession and boosting imports, thereby easing trade frictions. The credit card explosion has, therefore, not been viewed with much alarm here. The only worry is how the relatively small younger generation will support a huge group of retirees--estimated to hit 25% of the population in 2021--without a giant cushion of savings to fall back on.

Credit cards are only part of the debt problem. Credit card growth pales in comparison with the performance of Japan's consumer loan companies, which have shed their seamy, loan-sharking image to emerge as financial superstars.

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