Half of SA households trapped in 'serious debt'

More than half of South Africa's households are in serious debt and living beyond their means, and millions of people are unable to save enough for their retirement.

Research released yesterday found that middle-class and low-income households prefer buying expensive cars, which they can ill-afford, to investing in property.

Some take out loans to service debt, a pattern that puts them at a greater risk of being caught in a debt cycle.

The research findings follow warnings by cabinet ministers to households to lower their consumption or risk being stressed "financially and emotionally".

Yesterday, financial services group Momentum, in collaboration with the University of South Africa, released a financial "wellness" index based on interviews with 2937 respondents last year.

The research reveals that households are "financially unwell" because of poor financial planning, inflation and high interest rates, as well as high electricity tariffs and fuel prices.

It reveals that 4.8% of households are trapped in "dire debt" from which they cannot escape without assistance, and 48.5% are financially unstable but have some chance of escaping the debt trap.

According to the study, about 30.5% are in a sound financial position, and about 16.2% are not in debt.

Bernadene de Clercq, head of the personal finance research unit at Unisa, said about 59.35% of South Africans were not in a healthy financial position . She put most of the blame on "irresponsible spending".

"There is a big problem with people always trying to keep up with the Joneses. So it is buying a car that they do not need. They need a car but they could have bought a cheaper car, but because of their image they have to buy a more expensive car," she said.

De Clercq also blamed people for not planning sufficiently, including failing to draw up a budget.

She said that the households that were disciplined about spending were usually those with higher educational qualifications.

"You need to get financial advice on what your long-term goals are and where you are on that journey. Some of it might be to make sacrifices, having a cheaper car and investing in education," she said.

Carel van Aardt, the university's director of market research, said that it was worrying that many people spent a lot of money on daily consumption and little or nothing on accumulating assets.

He said there was an increase in unsecured lending, which he described as a "financial bubble" for consumers.

"Any form of unsecured lending is a risk. The risk is that quite a number of consumers are in a debt spiral.

"You will have good credit at a nice interest rate. When you default on that and you need further credit, you will take on a higher-risk credit with a higher interest rate, and then you will find yourself in a spiral, taking credit to service your other debt.

"We see quite a lot of people in that debt trap and it is very difficult to get out of it," he said.

On Monday, Finance Minister Pravin Gordhan said there seemed to be an increase in unsecured lending.

He said it was of concern that it was "feeding into consumption rather than being used for investment purposes".

He warned that high debt could stress households both "financially and emotionally".

Last year, Minister in the Presidency Trevor Manuel warned that households were sinking deeper into debt "by trying to keep up with the Kunenes".