Sunday, January 16

Average household in South Africa best positioned to incur and manage debt

The recovery in household income has seen more average South African households in better positions to incur debt and repay loans than before the start of the pandemic, findings from Altron Fintech’s (Afhri) Household Financial Resilience Index indicate for the first quarter of 2021.

The quarterly index, created by Altron Fintech in association with Dr. Roelof Botha, Optimum Investment Group’s economic advisor, aims to measure the level of financial resilience among South African households and their ability to service loans.


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Botha revealed during the Afhri launch on Wednesday (Aug 25) that this trend is likely to hold steady for a while.

The results of the first Afhri, released today, show that the average household is better able to incur and manage debt than before the Covid-19 pandemic began, and that the long-term upward trend in the index is likely continue in 2021 and 2022, ”he said.

Listen: Dr. Roelof Botha discusses the index with Fifi Peters

Fundamental reason

According to Dr. Johan Gellatly of Altron Fintech: “The Afhri is based on the fact that, ultimately, income is required to pay off debt. Without income of some kind, people cannot qualify for loans that allow greater access to the full range of goods and services that comprise private consumer spending, as well as the financing of the working capital required to sustain or expand small businesses. micro-businesses. .

“In an attempt to provide clear and quantitative guidance on the readiness of South African households, on average, to engage in viable borrowing activities, it was decided to design a composite index that would portray their financial resilience. Despite the devastating impact of the pandemic and shutdown restrictions on the economy, Afhri’s results show that household incomes have recovered and that borrowers are able to repay loans. ”

The index comprises 20 different indicators weighted according to the demand side of the short-term credit industry. It is calculated quarterly, with the first quarter of 2014 as the base period (equivalent to an index value of 100).

Resilience drop

The findings show that since the beginning of the base period, the household resilience index was on a constant increase, however, it fell significantly between the first and third quarters of 2020. Botha cited Covid-19 [impacts] as the main contributor to the decline, as there was a massive contraction in the labor market and workers incurred wage cuts.

However, between the fourth quarter of 2020 and the first quarter of 2021, the financial resilience of midsize households began to rise as lockdown levels were now lenient, allowing more economic activities to resume.

Read: Have a loan, you will buy

Botha noted that Covid-19 saw the emergence of intriguing revenue streams, such as long-term insurance policy bailouts.

“It is a very bad idea, but the fact is that it improves the financial resilience of households because it suddenly gives you a lot of money and hopefully you start sailing right away.”

He also pointed out that when the indicator of debt costs as a percentage of household income decreases, it shows a positive financial resilience of households. This indicator experienced a strong increase between the second quarter of 2020 and the fourth quarter of 2021 due to the pandemic as well, but it remained below the levels last seen in 2015.

The Afhri is one of the two indices developed by Altron Fintech. The second index, developed by economist Keith Lockwood of the Gordon Institute of Business Sciences and due to be launched in September, will analyze the economic impact of short-term credit in South Africa.

Listen to Fifi Peters’ interview with John Manyike, director of financial education at Old Mutual (or read the transcript here):

Palesa Mofokeng is a Moneyweb intern.

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