Household Debt Rate Management in a Credit Economy: An Empirical Review of South African Context

Authors

  • Dr. Ifeanyi Mbukanma Department of Economics and Business Sciences, Faculty of Commerce and Administration, NMD Campus, Walter Sisulu University, Republic of South Africa
  • Prof. Ravinder Rena Professor of Economics, DUT Business School, Faculty of Management Sciences, Durban University of Technology ML Sultan Campus, Republic of South Africa

Keywords:

Household Debt, Debt Management, Practical Knowledge Model, Credit Economy

Abstract

Purpose: The purpose of this paper was to ensure that household debt burden is minimised, and savings provision is made to smoothen future household expenses, practical household management knowledge needs to be acquired to manage these challenges most especially in a country that practices credit economy like South Africa. Methodology: This study was conducted on this context to ascertain a practical knowledge model for household debt management in a credit economy with a major focus on the South African context. To achieve this objective, an empirical review of previous works of literature on household financial management and debt management was conducted to build a practical knowledge model for household debt management that applies to the South African context. Although, the empirical review shows that limited logical theories and models exist within this area of study, as such concept and constructs that apply to household debt management was exploited from previous scholarly contributions in this area of study. Findings revealed that South African household with financial knowledge has more potential to manage and control their level of indebtedness. Secondly, it was also revealed that there is a continuous increase in household debt in South Africa as the credit economy has created room for continuous usage of credit facilities. Implications, a practical knowledge Model such as financial planning model, financial discipline model and knowledge of financial environment model was recommended to assist both households and policymakers. Originality this paper strategically manages the increase of household debt growth amidst the credit economic system that is practiced in South Africa.

Downloads

Download data is not yet available.

References

Abd Samad, K., Mohd Daud, S.N. & Mohd Dali, N.R.S. (2020). Determinants of household debt in emerging economies: A macro panel analysis. Cogent Business & Management, 7(1), p.1831765.

Abid, L., Zaghdene, S., Masmoudi, A. & Ghorbel, S.Z. (2017). Bayesian Network Modeling: A Case Study of Credit Scoring Analysis of Consumer Loan’s Default Payment. Asian Economic and Financial Review, 7(9), pp.846-857.

Abulafia, D. & Cohen, E. (2016). Internet payment system using credit card imaging. U.S. Patent 9, 305, 230.

Adelino, M., Schoar, A. & Severino, F. (2016). Loan originations and defaults in the mortgage crisis: The role of the middle class. The Review of Financial Studies, 29(7), pp.1635-1670.

Ahmad, M. & Khattak, S.I. (2020). Is aggregate domestic consumption spending (ADCS) per capita determining CO2 emissions in South Africa? A New Perspective. Environmental and Resource Economics, 75(3), pp. 529-552.

Belafi, Z.D., Hong, T. & Reith, A. (2019). A library of building occupant behaviour models represented in a standardised schema. Energy Efficiency, 12(3), pp.637-651.

Bethune, Z., Hu, T.W. & Rocheteau, G. (2018). Indeterminacy in credit economies. Journal of Economic Theory, 175, pp.556-584.

Buchen, T., Drometer, M., Oesing mann, K. & Wollmershäuser, T. (2016). Managing Household Debt in Croatia. In CESifo Forum (Vol. 17, No. 1, pp. 12-16). München: ifo Institut-Leibniz-Institut für Wirtschaftsforschung an der Universität München.

Chakrabarti, R. & Pattison, N. (2019). Auto credit and the 2005 bankruptcy reform: the impact of eliminating cramdowns. The Review of Financial Studies, 32(12), pp.4734-4766.

Cloyne, J.S. & Surico, P. (2017). Household debt and the dynamic effects of income tax changes. The Review of Economic Studies, 84(1), pp.45-81.

Cole, S., Iverson, B. & Tufano, P. (2017). Can gambling increase savings? Empirical evidence on prize-linked savings accounts.

da Veiga, A.P., Güths, S. & da Silva, A.K. (2020). Evaporative cooling in building roofs: Theoretical modeling and experimental validation (Part-1). Solar Energy, 207, pp.1122-1131.

Damstra, A., Boukes, M. & Vliegenthart, R. (2019). Taking it personal or national? Understanding the indirect effects of economic news on government support. West European Politics, pp.1-22.

Dou, Y., Masulis, R.W. & Zein, J. (2019). Shareholder wealth consequences of insider pledging of company stock as collateral for personal loans. The Review of Financial Studies, 32(12), pp.4810-4854.

Drobyshevsky, S.M., Idrisov, G.I., Kaukin, A.S., Pavlov, P.N. & Sinelnikov–Murylev, S.G., (2018). Decomposition of Russian GDP growth rates in 2007-2017 and forecast for 2018-2020. VOPROSY ECONOMIKI, 9.

Formicola, A.J. (2017). Considering Students’ Cost of a Dental Education: Return on Investment and Debt to Income Ratio. Journal of dental education, 81(8), pp.eS28-eS32.

Guo, Z., Zhang, Y. & Zhao, X.S. (2018). Risks of Long-Term Auto Loans. Available at SSRN 3290841.

Herispon, H. (2019). An Empirical Analysis of Household Debt Behavior Determinants. Economics and Finance in Indonesia, 65(2), pp.132-148.

Hiilamo, A. & Grundy, E. (2020). Household debt and depressive symptoms among older adults in three continental European countries. Ageing & Society, 40(2), pp.412-438.

Jiang, Z. (2019). An Empirical Bargaining Model with Digit Bias: A Study on Auto Loan Monthly Payments. Available at SSRN 3445171.

Kim, Y.K. (2016). Macroeconomic effects of household debt: an empirical analysis. Review of Keynesian Economics, 4(2), pp.127-150.

Kozubikova, L., Kotaskova, A., Dvorský, J. & Ključnikov, A. (2019). The impact of political factors' perception on suitability of international business environment: the case of startups. Economics & Sociology.

Kreiner, C.T., Leth-Petersen, S. & Willerslev-Olsen, L.C. (2020). Financial trouble across generations: Evidence from the universe of personal loans in Denmark. The Economic Journal, 130(625), pp.233-262.

Krige, D. (2019). Debt/credit, money and social relationships in the underground credit markets of Soweto, South Africa. Social Science Information, 58(3), pp.403-429.

Liu, Z., Zhong, X., Zhang, T. & Li, W. (2020). Household debt and happiness: evidence from the China Household Finance Survey. Applied Economics Letters, 27(3), pp.199-205.

Lombardi, M.J., Mohanty, M.S. & Shim, I. (2017). The real effects of household debt in the short and long run.

Lusardi, A. & Mitchell, O.S. (2014). The economic importance of financial literacy: Theory and evidence. Journal of Economic Literature, 52(1), pp.5-44.

Lusardi, A., Michaud, P.C. & Mitchell, O.S. (2017). Optimal financial knowledge and wealth inequality. Journal of Political Economy, 125(2), pp.431-477.

Mahapatra, M.S., Raveendran, J. & De, A. (2019). Building a Model on Influence of Behavioural and Cognitive Factors on Personal Financial Planning: A Study among Indian Households. Global Business Review, 20(4), pp.996-1009.

Mahlo, N. (2011). Determinants of household savings in South Africa. Doctoral dissertation, University of Johannesburg.

Mbukanma, I. (2019). Structural guideline interfacing financial literacy and savings behaviour of South African households: a study of Tshwane and Mahikeng municipality employees. Doctoral Thesis, North-West University South Africa.

Mbukanma, I., Rena, R. & Musvoto, W.S. (2020). Conceptual Dimension of Financial Literacy Variables towards Improving Household Savings Behaviour in a Credit Economy: A South African Perspective. Gender & Behaviour, 18(1): 14660-14674.

Meniago, C., Mukuddem-Petersen, J., Petersen, M.A. & Mongale, I.P. (2013). What causes household debt to increase in South Africa? Economic Modelling, 33, pp.482-492.

Mian, A., Sufi, A. & Verner, E. (2017). Household debt and business cycles worldwide. The Quarterly Journal of Economics, 132(4), pp.1755-1817.

Mian, Atif & Sufi, Amir. (2014). House of Debt. University of Chicago. ISBN 978-0-226-08194-6.

Nguyen, T.A.N., Rózsa, Z., Belás, J. & Belásová, Ľ. (2017). The effects of perceived and actual financial knowledge on regular personal savings: Case of Vietnam. Journal of International Studies, 10(2), pp.278-291.

Nomatye, A. & Phiri, A., (2017). Investigating the macroeconomic determinants of household debt in South Africa.

Oliver-Márquez, F.J., Guarnido-Rueda, A. & Amate-Fortes, I. (2020). Measuring financial knowledge: a macroeconomic perspective. International Economics and Economic Policy, pp.1-46.

Ozel, B., Nathanael, R.C., Raberto, M., Teglio, A. & Cincotti, S. (2019). Macroeconomic implications of mortgage loan requirements: an agent-based approach. Journal of Economic Interaction and Coordination, 14(1), pp.7-46.

Precious, C. & Asrat, T. (2014). Determinants of Household Savings in South Africa: An Econometric Approach (1990-2011). Mediterranean Journal of Social Sciences, 5(15), p.183-190.

Rena, R. (2006). Financial Institutions in Eritrea, Dar Es Salaam: New Africa Press.

SARB. (20I9). Annual Economic Report, Pretoria: South African Reserve Bank.

Slemrod, J., Collins, B., Hoopes, J.L., Reck, D. & Sebastiani, M. (2017). Does credit-card information reporting improve small-business tax compliance? Journal of Public Economics, 149, pp.1-19.

Stanton, R., Walden, J. & Wallace, N. (2018). Mortgage loan flow networks and financial norms. The Review of Financial Studies, 31(9), pp.3595-3642.

Stiglitz, J.E. (2016). The capitalist economy as a credit economy. In Towards a General Theory of Deep Downturns: Presidential Address from the 17th World Congress of the International Economic Association in 2014 (pp. 47-60). Palgrave Macmillan, London.

Swart, N., (2016). Personal financial management: The Southern African guide to personal financial planning. Juta (Pty) Limited. ISBN 978-0-70218-917-3.

Van der Watt, T. (1991). The beginner’s money manual. Cape Town: Human & Rousseau.

Vieira, K.M., Potrich, A.C.G. & Bressan, A.A. (2020). A proposal of a financial knowledge scale based on item response theory. Journal of Behavioral and Experimental Finance, 28, p.100405.

Yang, H.J., Wang, Y.X., Xia, J.J. & Zhang, Y. (2019). China GDP Prediction on Traffic and Transportation by PCA. In Proceeding of the 24th International Conference on Industrial Engineering and Engineering Management 2018 (pp. 388-394). Springer, Singapore.

Downloads

Published

25-11-2022

How to Cite

Dr. Ifeanyi Mbukanma, & Prof. Ravinder Rena. (2022). Household Debt Rate Management in a Credit Economy: An Empirical Review of South African Context. Researchers World - International Refereed Social Sciences Journal, 13(Special Issue), 01–12. Retrieved from https://researchersworld.com/index.php/rworld/article/view/2249

Issue

Section

Articles