The high household debt level, as seen in recent years, has been a concern for many
governments and financial institutions because of the decline in the well-being of households
and the financial burden indebted households pose on the economy. A household that cannot
afford to service its debt repayments will ultimately experience a decrease in its standard of
living, and many other essential monthly expenses such as school fees may be “crowded out”
by the debt repayments.
An alarming trend is the high levels of debt that households have indulged in, with little
regard for the negative consequences of such accumulated debt. Households which are unable
to service their debt repayments put a strain on the economy and contribute to an increase in
the cost of credit, DTI (2003). Consequentially, credit intermediaries will experience high
bad debts and thus, in turn, will factor this cost into the overall cost of credit.
The high household debt levels are caused by both demand and supply side factors such as
the overall decrease in interest rates, greater financial inclusion post-1994, a lack of
financially educated consumers, vague debt contracts and reckless credit lending by financial
intermediaries, National Credit Regulator (2012).
Excessive debt could indicate that the debt level has surpassed all other indicators such as
household income and net wealth, which would make debt unsustainable in the long run. The
aim of this research is to analyse the South African household debt levels and to assess
whether the implementation of the National Credit Act has had the desired effect on
household debt levels. The research will rely on previous literature and use time series data
extracted from The South African Reserve Bank to complete regression analysis.
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The research begins by introducing the concept of excessive debt and highlighting the current
debt levels in South Africa. The literature review covers the causes, advantages and
disadvantages of debt, and the last section covers the results of the South African household
debt trends.
The results indicate that household debt has indeed increased at an alarming rate, and these
debt levels continue to rise. The research highlights the implications of over-indebtedness on
both the microeconomic and macroeconomic level, and the dire consequences that can
cripple the economy if household debt levels continue to increase unabated. It is imperative
that policies set out by the National Credit Regulator succeed in curbing household overindebtedness
sooner rather than later, to assist and protect the households which are already
over-indebted and prevent further over-indebtedness. The research reveals that households
will continue to battle with over-indebtedness, thus the importance for policies to be in place
to protect both the consumers and financial services provides, and ultimately the economy.