Recent statistics show that, while household debts were in decline, South Africans were still failing to save, with household net wealth in decline.
The South African population’s relationship with debt is a troubled one. As one the the globe’s most heavily personally indebted nations, South Africa is a country where borrowing is at troubling levels and many borrowers are unable to repay what they have borrowed, particularly when it comes to “irresponsible” or “bad” loans taken out to fund holidays, shopping trips and other unnecessary expenses.
Yet fresh data from Momentum and UNISA reveals that South Africa’s personal debt crisis may be lessening. In the third quarter of 2016, levels of personal debt fell, offering some hope that financial education initiatives are helping to teach borrowers to use finance more prudently. Unfortunately, the picture is not entirely rosy as, while personal debt fell, so too did household net worth.
Net worth drops
Over the Q3 2016, South African household net worth dropped by 0.9%, following a 2.7% drop measured over the previous quarter. Calculated by appraising assets (such as investments and goods) then subtracting outstanding debts and owings, household net worth is a figure which helps paint a picture of the financial health of the nation – and the picture is not altogether a pretty one.
While any reduction in personal debt is a positive occurrence for South Africa, it’s the nation’s ongoing inability to save which remains troubling. Debt may have declined, but the figures are still very high, while many continue to find themselves unable to save money. Without savings, when times get tough, many households take on loans – yet again increasing debt levels.
Instalment sale credit decrease reduces debts
One of the factors behind the drop in personal debt levels in Q3 2016 was a decrease in instalment sales credit. 16% fewer passenger cars were sold over this period, triggering instalment sales credit to fall, actively reducing debts in the country. Over the same timeframe, the disposable income to debt ratio also rose, with households both feeling richer and owing less.
Will debt continue to drop?
Unfortunately this brief debt reprieve could be short lived. While organisations like Wonga.co.za try to encourage South African consumers to think harder about their financial futures, there are some potential financial pitfalls on the horizon.
Income, alcohol and tobacco taxes are all set to rise in the 2017/18 budget, making the cost of living more expensive for households. Meanwhile, a predicted 44 cent rise in petrol prices and 37 cent rise in diesel prices are also set to have a knock on effect on household finances in early 2017.
In a nutshell, now is no time to celebrate decreasing debt in South Africa. With millions still finding it impossible to save money, future growing financial pressures could well trigger further borrowing and irresponsible use of credit, as household net worth continues to drop. Whether or not loans and financial products are used correctly and responsibly will be testament to the effectiveness of the nation’s financial education drives.
Do you think debt is set to rise again in South Africa? Do you find it difficult to save? Have your say below.
