scholarly journals Determinants of household over-indebtedness in South Africa

2021 ◽  
Vol 09 (02) ◽  
Author(s):  
Roseline Tapuwa Karambakuwa ◽  
◽  
Ronney Ncwadi ◽  
Keyword(s):  
South Africa ◽  
Interest Rates ◽  
Disposable Income ◽  
Household Debt ◽  
Management Skills ◽  
Finance Management ◽  
Household Disposable Income ◽  
Negative Impacts ◽  
Social Grant ◽  
Female Headed Households

The proportion of household debt to disposable income is high in South Africa, signifying over-indebtedness which reduces the welfare of households. High debt leads to low savings, negatively impacting economic growth. This paper presents the determinants of household debt distress in South Africa and comes up with recommendations on how to manage household debt. The objectives are achieved through systematic literature review. Findings suggest that households are over-indebted because of several reasons. They lack necessary finance management skills and proper protection from predatory practices by lenders. Household indebtedness is also caused by the rising cost of living which leads to low household disposable income and savings, high interest rates, misfortunes and adverse trigger events and income inequalities. Education, age and being a recipient of a social grant all have positive and negative impacts on household indebtedness. Findings also suggest that female-headed households, renting households, large households, urban based households, households with a mortgage and households where the head is not working, is sick or disabled are more likely to be over-indebted. A framework is presented with recommendations on how household debt can be effectively managed in South Africa. Upskilling in finance management can help improve the way households manage their finances. Moneylending institutions should avoid predatory lending and disclose vital information affecting household borrowing decisions. A downward review of interest rates on debt is necessary with a balance between profitability and sustainability of loan repayments. Consumption insurance on loans is recommended to cushion debt distressed households.

scholarly journals Developing a framework for managing household debt The case of South Africa

2021 ◽  
Vol 12 (01) ◽  
Author(s):  
Roseline Tapuwa Karambakuwa ◽  
◽  
Ronney Ncwadi ◽  
Keyword(s):  
South Africa ◽  
Interest Rates ◽  
Urban Areas ◽  
Secondary Data ◽  
Disposable Income ◽  
Household Debt ◽  
Finance Management ◽  
Household Disposable Income ◽  
Social Grant ◽  
Female Headed Households

The proportion of household debt to disposable income is very high in South Africa, signifying over-indebtedness which reduces the welfare of households and ultimately reduces economic growth. This paper presents the determinants of the household debt in South Africa and comes up with a framework of recommendations on how to manage household debt. The objectives are achieved through systematic literature review, document analysis and secondary data analysis. Our findings suggest that households are over-indebted because they lack the necessary finance management skills, lack proper protection from the predatory practices by lenders and fail to obtain disclosure of vital information pertaining credit which affects their decision to borrow. Household indebtedness is also caused by the rising cost of living and low household disposable income, low household savings, high interest rates, misfortunes or adverse trigger events and living in urban areas. Education, age and being a recipient of a social grant all have positive and negative impacts on household indebtedness. Findings also suggest that female-headed households, renting households, large households, households with a mortgage and households where head is not working, is sick or disabled are more likely to be over-indebted. We develop a framework with recommendations for managing household debt in South Africa. We recommend upskilling to help households to effectively manage their finances and take responsibility. Moneylending institutions are encouraged to disclose vital information pertaining credit which affects decision to borrow by households and to avoid predatory lending. We also recommend a review of interest rates on debt and availability of consumption insurance on all loans to cover for cases when the household faces unforeseen circumstances affecting repayment.

scholarly journals Risk, opportunities and reasons of the household debt changes: The case of an emerging economy

2016 ◽  
Vol 14 (1) ◽  
pp. 476-484
Author(s):  
Sisimogang Tracy Seane ◽  
Gisele Mah ◽  
Paul Saah
Keyword(s):  
South Africa ◽  
Interest Rate ◽  
Price Index ◽  
Consumer Price Index ◽  
Debt Service ◽  
Disposable Income ◽  
Household Debt ◽  
Household Savings ◽  
Income Household ◽  
Household Disposable Income

In the past decades, household debt in both developed and developing countries have been increasing. With an increase in the standard of living, household debt is also bound to increase. This paper examines the cointegration and causal link among household disposable income, household savings, and debt service ratio, lending interest rate, consumer price index and household debt in South Africa. An Autoregressive Distributed Lag and Granger causality techniques was used to analyse data collected from the South African Reserve Bank and Quantec from 1984 to 2014. The results of Autoregressive Distributed Lag test revealed cointegrating relationships between household debt and debt service ratio as well as household debt and lending interest rate. However, there is no long run cointegrating relationship between household disposable income, household savings and consumer price index with household debt. The Granger causality results revealed that household disposable income, household savings, debt service ratio, lending interest rate, consumer price index do Granger cause household debt in South Africa. Policy makers should thus target these variables in order to reduce household debt in South Africa.

scholarly journals Risk, opportunities and reasons of the household debt changes: The case of an emerging economy

2016 ◽  
Vol 6 (4) ◽  
pp. 207-215
Author(s):  
Sisimogang Tracy Seane ◽  
Gisele Mah ◽  
Paul Saah
Keyword(s):  
South Africa ◽  
Interest Rate ◽  
Price Index ◽  
Consumer Price Index ◽  
Debt Service ◽  
Disposable Income ◽  
Household Debt ◽  
Household Savings ◽  
Income Household ◽  
Household Disposable Income

In the past decades, household debt in both developed and developing countries have been increasing. With an increase in the standard of living, household debt is also bound to increase. This paper examines the cointergation and causal link among household disposable income, household savings, debt service ratio, lending interest rate, consumer price index and household debt in South Africa. An Autoregressive Distributed Lag and Granger causality techniques was used to analyse data collected from the South African Reserve Bank and Quantec from 1984 to 2014. The results of Autoregressive Distributed Lag test revealed cointegrating relationships between household debt and debt service ratio as well as household debt and lending interest rate. However, there is no long run cointegrating relationship between household disposable income, household savings and consumer price index with household debt. The Granger causality results revealed that household disposable income, household savings, debt service ratio, lending interest rate, consumer price index do Granger cause household debt in South Africa. Policy makers should thus target these variables in order to reduce household debt in South Africa.

scholarly journals The credit consumption pattern in South Africa: A trend analysis

2015 ◽  
Vol 5 (3) ◽  
pp. 194-204
Author(s):  
Ashley Teedzwi Mutezo
Keyword(s):  
South Africa ◽  
Interest Rates ◽  
Developed Countries ◽  
Disposable Income ◽  
Consumption Pattern ◽  
Household Debt ◽  
Long Run ◽  
Short Run ◽  
The Developed Countries ◽  
The Relationship

While the developed countries witnessed a significant contraction in credit consumption in response to the financial crisis in 2008, South Africa’s household debt continues to be on the increase. This article is based on empirical research on the relationship between household debt and disposable income, net wealth, interest rates and inflation for the period between 1975 and 2013. Using regression analyses, the study examines the linkage between household debt and consumption spending in South Africa to capture the short-run and long-run dynamics. The results show that there is a significant relationship between household debt and disposable income, net wealth and inflation. Further tests indicate that there is a bidirectional causality running from economic growth to household debt and vice versa. However, it is revealed that there is no direct relationship between household debt and lending rates

Creating a Development Bank to Finance Affordable Housing in South Africa is a Timely Catalyst to Address Demand and Supply Challenges

2020 ◽  
pp. 810-826
Author(s):  
Vuyisani Moss
Keyword(s):  
South Africa ◽  
Interest Rates ◽  
Affordable Housing ◽  
House Price ◽  
Disposable Income ◽  
Development Bank ◽  
Demand And Supply ◽  
Private Sector Participation ◽  
Mortgage Finance ◽  
Mortgage Interest Rates

The twin problems of affordability and accessibility that hamper the progress of housing in our country need to be addressed on a sustainable basis and the state needs to take on the role as a facilitator to create the enabling environment to encourage greater private sector participation. As a consequence, it is quite opportune to establish the Human Settlements Development Bank (HSDB). The mortgage finance affordability challenge is also attributable to key essential drivers, namely; house price index, disposable income, and the mortgage interest rates.

scholarly journals Effectiveness of the national credit act of South Africa in reducing household debt: a Johansen cointegration and VECM analysis

2014 ◽  
Vol 3 (4) ◽  
pp. 179-192
Author(s):  
Alfred Bimha
Keyword(s):  
South Africa ◽  
Convincing Evidence ◽  
Cointegration Analysis ◽  
Disposable Income ◽  
Household Debt ◽  
Coverage Ratio ◽  
Long Run ◽  
Johansen Cointegration ◽  
Short Run ◽  
National Credit Act

The rise in unsecured lending has cast doubt on the effectiveness of the National Credit Act in South Africa. Reckless lending was seen rising since 2006 and plateauing in 2009. Could this be evidence of the effectiveness of the National Credit Act (NCA) curbing reckless lending household debts? This study embarks on finding whether reckless lending was present in the Pre-NCA period running from 1994 to the end of 2nd quarter of 2007 when the NCA was enacted. Further in this study, the effectiveness of NCA in curbing reckless lending in the Post-NCA period starting from the 3rd quarter of 2007 to the 2nd quarter of 2014. Using the Johansen Cointegration analysis and Vector Error Correction Model, long run and short run Granger causality tests are done with the household debt as a dependent and debt service coverage ratio, household debt to disposable income ratio and disposable income as independents. The results from the tests done provide convincing evidence that reckless lending indeed was present in the Pre-NCA period and there is evidence showing the curbing of reckless lending in the Post-NCA period.

scholarly journals Modelling Real Private Consumption Expenditure in South Africa to Test the Absolute Income Hypothesis

2018 ◽  
Vol 10 (5(J)) ◽  
pp. 138-155
Author(s):  
Bokana K.G. ◽  
Kabongo W.N.S.
Keyword(s):  
South Africa ◽  
Economic Activity ◽  
Private Consumption ◽  
Disposable Income ◽  
Consumption Expenditure ◽  
Permanent Income Hypothesis ◽  
Fiscal Stimulus ◽  
Absolute Income ◽  
Household Disposable Income ◽  
The Absolute

This paper explores, the hotly debated topic among economists and policymakers, whether fiscal and monetary policies impact on households by examining the relevance of the absolute income hypothesis in explaining private consumption expenditure and its relationship with household disposable income in South Africa. Worldwide, private consumption expenditure remains a big puzzle for leading consumption function theories. Friedman’s permanent income hypothesis posits that private consumption expenditure is not affected by how much consumers earn on a daily basis, but by what they expect to earn during their lifetime. Friedman’s permanent income hypothesis is at odds with Keynes’s absolute income hypothesis, that private consumption expenditure is affected by fiscal stimulus policies, which are effective for increasing economic activity and employment. Subscribing to the former underrates the potential power of fiscal stimulus policies and other monetary or trade policies that boost short-term income. The overarching objective of this paper is to ascertain whether patterns of private consumption expenditure in South Africa are determined by Friedman or Keynes’s theory. The paper specified econometric equations with quarterly seasonally adjusted data from the South African Reserve Bank for the sample period 1984 to 2015 and estimated them with cointegration techniques consisting of the Engle-Granger two-step approach. The importance of the paper and its scientific novelty are that it is more realistic since it specified models that take into account the reaction time of the dependent variable when the independent variable changes by imposing lags on the variables. The empirical results indicate that in South Africa, when household disposable income changes over time, private consumption expenditure depends more on a household’s previous disposable income than its current disposable income. The main empirical finding is that the absolute income hypothesis is not appropriate in explaining private consumption expenditure in this country. Even when the interest rate was included in a modified absolute income hypothesis, the overall estimates were not robust. Hence, estimates of the short- and long-run regression models were not consistent with the absolute income hypothesis. This is in line with arguments put forward in some extant studies using this model, that the fiscal stimulus policies might not generate the desired increased economic activity and employment. If households use money from the fiscal stimulus policies to bail themselves out of existing debts rather than consume additional goods and services which, would be the catalyzer to increase Gross Domestic Product (GDP). 

scholarly journals Personal Over-indebtedness in Croatia and Measures for its Reduction

2016 ◽  
Vol 19 (1) ◽  
pp. 45-58
Author(s):  
Predrag Bejaković
Keyword(s):  
Interest Rates ◽  
Financial Stability ◽  
Household Debt ◽  
Additional Increase ◽  
Debt Burden ◽  
Household Disposable Income ◽  
Individual Household ◽  
Vulnerability Indicator ◽  
Real Growth ◽  
Insight Into

Abstract The robust growth in household debt in pre-crisis period coincided with real growth in household disposable income, large economic expansion and a considerable fall in banks’ interest rates. However, household debt indicators deteriorated markedly as total household debt grew faster than income. This raised concerns about potential implications of an additional increase in the debt burden on financial stability. An analysis of household debt based exclusively on data aggregated at the sector level is not a best financial vulnerability indicator as it fails to provide insight into the distribution of debt and credit risk by individual household groups. The text explains the problems with personal over-indebtedness in Croatia and measures for their reduction.

scholarly journals Zadłużenie gospodarstw domowych a dynamika wydatków konsumpcyjnych w krajach OECD po wybuchu kryzysu finansowego

2017 ◽  
pp. 145-158
Author(s):  
Piotr Bolibok
Keyword(s):  
Economic Growth ◽  
Financial Crisis ◽  
Interest Rates ◽  
Global Financial Crisis ◽  
Disposable Income ◽  
Household Debt ◽  
Rate Of Growth ◽  
The Global Financial Crisis ◽  
The Impact

The paper aims at empirical evaluation of the impact of household debt on the dynamics of consumption spending since the beginning of the global financial crisis. The research employed linear regression analysis of the rate of growth of household spending against the rate of growth of disposable income, the level of indebtedness and long-term interest rates in the OECD member states between 2008-2014. The results obtained indicate that household indebtedness was one of the factors influencing the dynamics of consumption demand and thus the processes of economic growth in the OECD states after the beginning of the global financial crisis. Variations in the relation of total debt to net disposable income and in the level of long-term interest rates were both negatively related to the changes in consumption spending. This impact turned out to be markedly stronger when total household debt of a given country was exceeding 85% of GDP, which is consistent with the results of previous investigations on the in&uence of the indebtedness of household sector on the dynamics of economic growth

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