John Loos, household and property sector strategist at First National Bank (FNB) said that while average indebtedness has come down this year, household savings is still a problem.
"Encouraging economic signs coming primarily from a huge drop in global oil prices, and the prospect of improved economic growth in 2015, lead us to expect that the country's household sector could continue make further slight improvements to its indebtedness situation," said Loos.
Household debt
In 2008 the average annual debt-to-disposable income ratio was 87.1%. This is how much money, on average, adults in South Africa owe to financial institutions. However, since then the household sector has gradually lowered its debt ratio to an estimated 78.4% average for 2014.
The Consumer Price Inflation (CPI) is expected to lower this year, and along with slightly faster economic growth, consumers could see an improvement in real disposable income growth from 1.5% in 2014 to 2.5% in 2015.
"We expect that the Household Sector still has room to grow its borrowing at a slower rate than nominal disposable income growth," said Loos.
Loos expects this to result in a lower household debt in 2016, at 77.7%.
Weak savings rate
In the third quarter of 2014 [July to September], the household net savings – the amount of savings after all deductions - was -2.3% of disposable income.
This implies that the levels of gross saving [the amount of all savings together] are insufficient to cover the depreciation on fixed assets, such as homes.
"The rate had become slightly "less negative" compared to the -2.5% all-time low reached late in 2013, but this is small reason for excitement," said Loos.
"The weakening savings rate has been a multi-decade trend. Various reasons have been put forward over the years, but it would appear that tougher times may be the catalyst for a higher savings rate and vice versa," said Loos.
Loos went on to explain that another theory for the low savings rate is that urbanisation has increased people's confidence in their ability to get another income source should they lose their current job, for instance.
This means that fewer people are saving every month, as they believe they are able to find another job rather easily.
"In short, South Africa's dismal household savings rate is not expected to show an improvement in the 2015-2016 forecasted period," said Loos.
For more information on handling debt in 2015, click here.
Housing market
Loos warned that one key risk to the lower household debt forecast will be the housing market. Over the past three years, the housing market has gained momentum.
"A stronger than expected performance by this [housing] market in the forecast period [2015-2016] can risk leading to stronger than predicted credit growth, and the resumption of an increase in the Indebtedness Ratio, we would deem undesirable," said Loos.
This momentum in the housing market can be attributed to lower oil prices, as well as lower global food prices.
From a household savings point of view, interest rates may well be low, which will encourage consumption more than saving. Even though the economic forecast for household debt looks promising, consumers are urged to save their money, and be financially healthy.
For more information on the housing market, click here.