Russia's economy: Personal debt pyramids crumble as bankruptcies soar

Russia is facing a surge in personal bankruptcies, with nearly 568,000 citizens declaring insolvency last year, a record high. The majority, 97%, initiated the process themselves, opting for a seven-year ban from credit registries as the only escape from mounting debts.

The trend is particularly pronounced among younger demographics. In the first quarter of this year, 137,500 individuals were declared bankrupt, a 13.7% increase from the previous year. Millennials and Gen Z now constitute nearly half of all bankrupts, with their share growing from 15% to 20% in just one year. This indicates that personal bankruptcy is increasingly becoming a problem for younger families, not just older generations.

Economists attribute this crisis to a familiar mechanism: years of taking out new loans to cover old ones. This pyramid scheme worked as long as the job market provided employment and wages. However, with the job market shrinking and no funds for wage indexation, these financial structures are collapsing nationwide, according to macroeconomist Artem Loginov.

The strain is evident in daily life. Complaints filed with the Central Bank against microfinance organizations jumped by 47% in the first quarter. Pawnshops have also seen a sharp increase in activity, with 4.9 million contracts signed and a 16% portfolio growth, as people increasingly pawn gold for cash. The most problematic loans are unsecured consumer loans, where the share of non-performing loans rose from 9% to 13% in a year. While the overall household debt-to-GDP ratio remains relatively low internationally, the speed of its increase is the critical issue.