Money-tight and expense-ridden, Israelis have always lived on credit, but now both banks and private consultants are trying to slow down the long spiral into debt.

Not long ago, so the story goes, a group of aliya emissaries in the United States got a lesson on Israeli economics.

The instructor made a list on the chalkboard and divided it into two sections: income and expenses. Choosing about $2,400, the average family’s monthly income, he started listing expenses. When he hit $2,600 an emissary said, “You’ve got to stop!”

“But we have more expenses,” came the reply.

“But the right side’s going to be so much more than the left,” the emissary said.

“Explain that to potential immigrants,” said the teacher.

The Jewish state runs on credit, ironic considering biblical prohibitions against usury. About 65 to 70 percent of households are in debt—often buying unnecessary items while barely keeping up with mortgages, insurance and daily living expenses.

Lately, there have been some attempts to address the debt problem. The central Bank of Israel has issued a directive trying to clarify Israel’s credit system. Finance-management experts are offering workshops, radio shows and newspaper columns to address money issues.

“I think that it’s a kind of awakening to say that [the debt] is obviously unhealthy,” says economist Yaacov Fisher, C.E.O. of Israel Business Information Services, Ltd.

The institutionalization of debt-incurring practices can be traced to the government; according to Globes, Israel’s financial newspaper, in 2004 the country owed about 102 percent of its gross domestic product.

“It’s a well-known fact that Israel is a country that lives far beyond its means,” says Fisher. “And…we have various Uncle Sams who are willing to give us loans so the country can continue to live beyond its means. When people see their country running this way, they don’t have an incentive to live differently.”

Defense needs provide the government with an excuse for its borrowing habits; for individuals it is simply that many do not earn enough. Unlike in the United States, where people are indebted to credit card companies, Israelis rely on bank credit—the overdraft—to pay mortgages, child care, even groceries; in 2004, Israelis’ combined overdraft bill hit about $1 billion.

It works like this: If you have a checking account into which your paycheck has been deposited for at least three months, you are eligible for an automatic basic credit with an interest rate of about 9 to 10 percent. When a person spends more than his account balance, the bank will automatically go into overdraft without notification. Often, a bank will only call a client if he runs up excess overdraft—spending beyond the approved credit limit. A new or expanded credit line is easy to get: All it takes is a visit to the bank and a handshake—and, of course, the interest is much higher, 13 to 15 percent.

“I [see] situations where people sell their apartments for only 90 percent of its value so they can pay back the banks,” says Kobi Ranat, a real estate agent. “They have an apartment, and it’s really not theirs, 80 to 90 percent belongs to the bank. I know couples who had a fancy wedding, which they then have to pay off in 10 years.… Everyone lives on money they have to pay back.”

Nahman Lidor, who has written on the subject, is serious when he blames the debt spiral on color television. “[In 1977] we went from having only black-and-white television to color broadcasts,” he recalls. “People living on their salaries alone couldn’t afford [color TV’s], so [banks] offered credit.”

Dallas was airing then and, Lidor says, everyone wanted to live like J.R. Ewing. People asked for more credit, and the banks decided to institutionalize the process.

But there’s another element to overspending, he says. “People think: Who knows what terror attack we might be in tomorrow or what war? [They] want whatever they want now—they don’t have patience because the feeling is that life is short….” Another result of the here-and-now thinking: 47 percent of Israelis don’t have retirement savings.

Fiscal responsibility is not part of the Israeli education system. “No one teaches us how to handle our own finances,” says Ranat. “They teach us how to work and make money. And [personal finance] is something you must be taught.”

Aside from problems with personal spending, many Israelis feel the banks take advantage of them. Customers complain that interest rates, especially for the excess overdraft, can be ambiguous, frequently depending on one’s relationship with the banker.

This unregulated system of credit didn’t sit well with the Bank of Israel, and it has decided to impose greater transparency in transactions starting in January 2006. According to the new directive, customers must know ahead of time exactly what they are going to be paying in overdraft interest. “The banks will have to determine the credit framework for the client that fits his needs, his ability to return payment and his securities,” reads a February 2005 Bank of Israel statement.

If a customer requests excess overdraft credit, and the bank is willing to allow it, an appropriate limit must be agreed upon in writing.

Deputy Supervisor of Banks Avi Vishnevich, who helped write the new directive, says the central bank acted because of “a widening phenomenon in [credit] conditions…not backed up by agreements signed ahead of time between the bank and the customer regarding how it was going to be paid.” The overdraft will remain, he insists. It is an important tool for firms and households alike, especially in cases of financial emergencies.

“We’re not talking about a casino here,” he says, “but a desire on our part to help both sides, the clients…and the banks to introduce more rationality into this account relationship.”

While the banks are trying to institute reforms on a national level, Lidor and Jody Blum are focusing on individuals. They are part of the new wave of Israeli financial consultants—the borrow-busters. Both run intensive workshops for native-born Israelis and American immigrants who have hit the financial skids.

Blum says most clients call after “a moment of clarity, of awareness that their situation is pretty dire.” Jokes Heidi Gold, a divorced mother of six, “In America, when I bounced a check, I bounced a check. Here they give me a prize—more credit.”

Olim often have a harder time fitting into the Israeli financial system. “I just think about how in America, you kept a running balance in your checkbook,” says Howie Frankel, from the Kahn Association of Americans and Canadians in Israel. “I’ve never been able to do that here.”

Blum’s interest grew out of her own financial struggles, which led her to take a class with Lidor. She has a psychology degree, with a minor in business administration, and a master’s degree in social work. “A lot of this is social work,” she explains.

Blum initially focuses on emotions involved with money. The class also gets homework: no debts incurred for a week. “This woman sitting next to me, who was teaching at a top Jerusalem school,” recalls Gold, “began to sob uncontrollably, and the only words out of her mouth were: ‘Then there won’t be Shabbos.’”

Lidor stresses facts and figures in his four-to-six session workshops. His clients run the gamut from the seemingly wealthy to those who are struggling, young couples to pensioners. “There’s almost no connection between the person’s income and whether they have an overdraft,” says Lidor. “One can’t give up traveling abroad and driving a Jaguar, while another can’t give up ketchup.”

He decries a society that doesn’t educate about family finance, not even the wisdom of starting a savings account for children. The seductive overdraft feeds into the ignorance. “[It] leads most people to think they don’t have to plan their family’s budget,” he says. “No one has to set any limits, make any decisions.… Instead they earn a reasonable amount, spend as much as they want and think it’ll all be O.K.”

Lidor’s clients learn to be wise consumers, use payment plans and analyze life-insurance policies. Both consultants say participants pass the information on to their own kids, who willingly share the burden. Chaya Feldman recalls being amazed when, after explaining how the water bill works, her teenage daughter said: “O.K., Mom, I’ll take shorter showers.” Haim Kagan, a father of five who took Lidor’s class with his wife, Rachel, recalls the happy cries of “Kol hakavod, Abba,” when he balanced the family budget.

Blum says Israelis still “look at me funny” when she reveals her profession, but copycat businesses have sprung up. Even Maccabi Tel Aviv basketball coach Pini Gershon—no expert—was recruited as a familiar face for a television series on the subject.

“I think it’s starting to take off, but I don’t think we’re there yet,” says Blum. She claims up to 95 percent of her clients say the class “changed their lives” spiritually and emotionally.

That’s certainly true for Gold, now unfazed by a daughter’s looming wedding, thanks to what the borrow-busters taught her.

“I used to think I’d end up in jail because I hadn’t paid my property taxes,” she recalls. “I’m not going to end up in jail—I’m going to have to sit down, eat crow, cry and figure something out. That’s an Israeli attitude, but with a kicker, and that is: I want to pay and I want to get a grip and I’m making choices.”