Debt: Common Metrics Don't Tell The Full Story

Good debt, bad debt, no debt? Very few South Africans can live debt-free, and utilising debt facilities like home and car loans are not necessarily poor financial decisions. However, there’s a reason it’s called a debt spiral. And millions of South Africans are struggling to stay out of that spiral.

- Brendan Peacock

the most common metric used by monetary policymakers like the South African Reserve Bank to assess the indebtedness of South African consumers is the household debt-to-gross income ratio, which stood at 71.9% through 2018.

This figure remained unchanged from a year before, some way off an all-time high of 86.4% in 2008, before the global financial meltdown. It is above the long-term average since 1969, which is 57.9%.

By comparison with especially developed countries, South Africa’s debt-to-gross income ratio is relatively low, with consumers in the Netherlands wielding an astonishing 209% of debt-to-gross income.

So just how indebted are South African consumers and is this worth worrying about?

The old aphorism that there are lies, damned lies and statistics is probably worth repeating here because the cost of living – rising fast as the economy struggles to absorb Eskom’s balance sheet woes – is not reflected in the number above, and neither is sluggish wage growth in a stuttering economy. The makeup of this debt is also not reflected, which means a rise in unsecured lending at higher interest rates, which can pressurise consumers’ cash flow, is also not reflected.

Another aspect to consider is that debt metrics have typically only measured bank-originated debt, which means both formal sector credit from non-bank lenders and the informal lending sector are not fully taken into account when compiling these figures.

The gap in measurement is narrowing for lenders who access credit bureau data to make lending decisions. Although, according to Experian South Africa’s chief data officer, David Coleman, most of the data credit bureaus like Experian receive comes from the South African Consumer Risk and Reporting Association.