The South African Reserve Bank (SARB) announced in its last quarterly bulletin that household debt as a percentage of disposable was 72.7% as at the end of 2018. That is to say that almost 75% of households available funds are spent on debt. A worrying sign for an economy whose consumers contributes almost 60% to the economy.

Households drowning in debt

Debt is like an anchor for a ship. It weighs a person, business or country down. If a person, business or country has too much debt, too much money is spent on paying the interest on the debt, as well as paying off the actual debt amount. This is currently where South African consumers, and in fact the South African government finds itself.

The following paragraph is an extract from the latest Quarterly Bulletin from the South African Reserve Bank:

Household debt increased at a faster pace in the fourth quarter of 2018. Mortgage advances, the largest component of household debt, contributed the most to the increase. General loans and
advances at all monetary institutions also increased notably, suggesting that consumers borrowed to sustain spending.

Household debt as a percentage of nominal disposable income edged higher from 71.8% in the third quarter of 2018 to 72.7% in the fourth quarter, as the quarter-to-quarter increase in household debt exceeded that in disposable income.

While taking on debt is one thing, it is the cost of servicing the debt (basically the interest paid on the debt) that makes taking on too much debt such a problem. Eventually, the amount of money paid on just paying back interest on the debt (not even talking about reducing the actual debt that was taken on) starts eating away at disposable income or money people have to spend on a monthly basis.

Reference: DC Partner Gazette