In South Africa, household debt has enabled families to improve their standard of living by letting them buy things they cannot afford upfront, like a house or a car. But when people borrow more than they can repay, it creates big challenges—not only for individual families but for the entire economy.

South Africa has one of the highest household debt-to-income ratios in the world. At times, it has been as high as 77.1%, meaning that for every rand a household earns, it owes 77 cents. This over-indebtedness reduces household welfare and slows down the country’s economic growth. Even though the government provides social grants to vulnerable households, many families still end up borrowing large amounts of money and struggling to repay it. This situation increases non-performing loans in the banking sector and threatens financial stability, similar to what happened during the 2007-2009 global financial crisis.

A research study funded by the NRF investigated what causes households or South African individuals to become over-indebted, what happens when families can’t repay their loans, and how this problem can be solved.

To reach the research aims, the researchers based the study on economic theories like the Life-Cycle Hypothesis, which explains how people borrow and save money during different stages of their lives. They analysed both international and South African studies to understand the debt problem. They looked at official reports from institutions like the National Credit Regulator and examined statistics on household debt, interest rates, and income levels in South Africa.

The research findings show that the household debt-to-disposable income ratio in South Africa has remained high, even after the global financial crisis. In 2020, it stood at 77.1%, up from 71.9% in 2018. The majority of household debt comes from mortgages (52%), followed by secured credit agreements (22%), credit facilities like credit cards (13%), and unsecured credit (10%).