The financial and social experiences of over-indebted low-income households in South Africa .

Abstract

Findings from the 2013 Finscope SA Consumer Survey suggest that almost 14% of all South Africans over the age of 16 are over-indebted (Finmark Trust, 2013). The same report suggests that almost one third of credit active individuals showed signs of over-indebtedness, suggesting that they may become over-indebted in the future. Additionally, the report found that 19% of individuals borrow money in order to service existing debts. These figures are concerning as the average South African household survives on income less than R8000 per month (Finmark Trust, 2013). Furthermore, in 2015, South Africa’s unemployment rate ranked amongst the highest in the world, measuring between 24,3% and 34.6% depending on the definition of unemployment (International Labour Organization, 2015; StatsSA, 2014b). In an environment characterised by high unemployment, negative economic growth and rising consumer debt levels, consumers are becoming more vulnerable to getting caught in a debt spiral. Low-income households – those that earn R8000 or less every month - are arguably most at risk of getting caught in a debt trap, as their limited income is insufficient to pay for even their most basic necessities. Over-indebtedness in South Africa should thus be of national concern with sustainable strategies put in place to protect consumers from falling into a debt spiral. In order to explore the financial and social experiences of over-indebted low-income households in the South African context, data was collected using in-depth, semi-structured, face-to-face interviews with both over-indebted and non-over-indebted individuals that earned an income of less than R8000 per month were conducted. This exploratory study employed a non-probability sampling approach to identify specific respondents to be interviewed. The research found that financial and legal literacy levels are low in both over-indebted and non-over-indebted, low-income households. It also found that over-indebted low-income households are more susceptible to peer pressure and have lower self-control than households that are not over-indebted. And finally, the research found that credit is granted too easily in South Africa. Low-income households that are vulnerable to over-indebtedness should look to their non-over-indebted counterparts for advice on how to avoid falling into a debt trap. Consumers should become aware of the dangers of peer pressure and should exercise self-control as a means of protecting themselves from making purchasing decisions that will push them into a debt spiral. Both the state and consumers should put measures in place to empower the public with becoming more financially literate. Consumers should look to purchase non-depreciating assets rather than items which have little or no resell value. Emphasis should be placed on creating a more egalitarian focus within a capitalist society. Additionally, the National Credit Regulator should monitor credit providers closely and enforce strict penalties on institutions found to be lending recklessly.