LENDERS AND BORROWERS
Disaster awaits if the finance sector fails to give consumers a better deal
Unless the finance sector tackles indebtedness, the level of unproductive debt will result in people retiring without any assets, write Stuart Theobald and Grant Locke
SA, we have a problem. Much of the lending industry has evolved into something that harms rather than helps the financial position of the average client. Over the past four decades, consumer debt has shifted from largely productive borrowing that supported the accumulation of real assets into largely unproductive financing of consumption. As a result, we are creating a future in which millions of South Africans will be retiring with insolvent personal balance sheets, saved from abject poverty only by meagre state pensions.
In the 1970s the average savings rate of households was about 9.45% of disposable income. At the advent of democracy it was about 4%. From 2005 to 2017 the rate was less than zero, meaning that households have been spending more than they earn, cutting into their savings or borrowing to do it. At the same time, total debt held by South Africans has climbed. Debt reached a peak in 2008 just prior to the global financial crisis at 86.4% of disposable income. T...
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