Debt and household finance: evidence from the Financial Diaries

Abstract

The Financial Diaries data-set is a unique, new set of year-long daily income, expense and financial transactions for households from three different areas of South Africa. These data show that over-indebted households (those that spend 20 per cent or more of their gross monthly income on debt) do not fit one homogeneous profile. Formal debt tends to be responsible for over-indebtedness in the urban areas, while in the rural areas the cause tends to be informal debt. In the urban areas high indebtedness is more prevalent among medium-income and high-income households, whereas in the rural areas it occurs at all income levels. High indebtedness in grant-dependent rural households tends to be persistent, whereas in wage-dependent urban households it is often short-lived. These findings present a new financial picture of poor rural populations that is unlikely to be touched by recent policy measures to address over-indebtedness.

Acknowledgments

The author wishes to thank two anonymous reviewers for the helpful and insightful comments. All remaining errors are the author's own.

Notes

1 The sample started out with 181 households and had an attrition rate of 19 per cent through the survey year. The analysis shown in this paper is based on the 152 households for which we have a complete set of data.

2 The names in the case studies have been changed to protect the identities of the respondents.