Judgments Fall But Debt Remains High

John Vaughan (Financial Advisor) @ Lucid Living

The total number of civil judgments recorded for debt, issued to individuals, in SA in May 2011 decreased 17% year-on-year (y/y), data from Statistics SA (Stats SA) showed.

This marked the tenth consecutive month of decline, said Kgotso Radira, economist at Investec Group Economics, in a statement.

During May, 50,578 civil judgments for debt amounting to R463.6 million were recorded.

In addition, the total number of civil summonses issued for debt fell 27.5% y/y in May 2011.

Although the lower interest rates and inflation have contributed to reduced debt stress among households, this improvement seems to have done little to improve household disposable income in the economy due to the high debt-to-disposable income ratio that still persists, and which stands at 76.0%. This has eased somewhat from a high of 80%, reached in late 2008.

This level of indebtedness has ratcheted up from just 50% in 2002. Consumer debt in South Africa appears to be at disastrous levels, according to many press reports, most recently one on the front page of The Times newspaper.

Similarly, Business Day reported last week, based on the same figures, that credit-fuelled lifestyles were a recipe for disaster and that the need for instant gratification and a lack of savings were resulting in serious debt.

On the face of it South African consumers have a tonne of debt, with most of their disposable income going to service it. On average four-fifths of after-tax income goes just to service debt, leaving one-fifth for food, school fees and uniforms, transport, insurance and medical costs.

“The de-leveraging process for individuals is likely to take some time as the quantum of debt taken during the boom periods remains high,” said Radira.