Johannesburg - Twenty-eight percent of South Africans, or around 9.1 million people, claim to be currently borrowing money, contrasting with 13% in 2007 and 12% in 2006, according to FinScope's 2008 survey.
The level of debt was found to differ significantly by race, with those races with the largest average incomes being the most in debt. White (59%) and Indian/Asian (43%) adults were found to be the biggest borrowers, with level of borrowing being far lower amongst coloured (27%) and black (23%) adults. As
expected, levels of debt peak between 35 and 50 years of age.
One in six adult South Africans, or more than 5.2 million people, have some form of formal debt, the study found. Credit cards and store cards/accounts are the most prevalent forms, with their incidence significantly higher among whites than other race groups.
In line with historical trends, the reasons for borrowing vary considerably among race groups.
"White and Indian/Asian adults are far more likely to borrow money to service the acquisition of assets, thus often bettering their long-term financial standing. By contrast, black and coloured adults are more likely to borrow to meet everyday survival needs, the most common reason being to buy food. Therefore, although a significant portion of the population lives beyond its means, this scenario is not fuelled by anything other than basic necessity," said the researchers.
The source of credit is also largely polarised.
Gauteng has highest debt
"Based on their relative financial strength in the market, white and Asian adults have the highest incidence of taking out loans through the formal sector. Banks fulfil most of these loan requirements. However, in the population as a whole, a person's own network is preferred for a loan rather than a formal institution. Loans from friends and family are the most prevalent source of credit in the informal sector."
Although the National Credit Act has only been in existence for a short period, the researchers found it disappointing that knowledge of the Act has not improved since 2007.
"However, as the Act can be applied only to institutions in the formal arena, much of the lending and borrowing behaviour falls out of the sphere of its influence. In these circumstances, the rights of borrowers and lenders are still not protected," said the study.
Gauteng had the highest debt penetration - in line with the highest average personal income of R4 100 - at 43%, followed by the Western Cape at 35% and R2 200. The lowest was the Free State at 15% and R1 200.
From a city perspective, residents of Johannesburg have significantly more formal (31%) as well as informal debt (17%) than residents of other cities. Bloemfontein has the lowest levels of both formal (5%) as well as informal debt
(5%).
The power of consumerism is evident in the fact that over one in four adults agree that they "love spending money to purchase goods, even if they have to use credit to do so". Agreement with this statement was higher in the white (32%) and Indian/Asian (32%) markets and lowest among coloured adults (21%).
Moreover, significantly more South Africans agree with the statement that they "never seem to be able to pay off their debt, it just keeps getting worse than it did in 2007" (19% vs 14% respectively).
"It is distressing that almost one in five South Africans feel trapped by debt, signalling significant economic hardship. This sense of overwhelming debt is worse in the black and Indian/Asian markets, where 19% agree with the statement, and lower in the white and coloured markets, where 15% agree with
this statement," noted the researchers.
FinScope was launched in 2003 by the FinMark Trust. It was an attempt to establish credible benchmarks for the use of, and access to, financial services in South Africa. Face-to-face interviews were conducted among 3 900 South African residents aged 16 years and older, between August and October 2008.
- I-Net Bridge