Play the game and guess the answer

Posted on July 17th, 2008 by Richard Catto 1,324 views

Let’s play a little game, shall we?

I subscribe to SA Fact a Day which emails me little statistical factoids about life in South Africa every week day. I don’t read everyone of them. Sometimes I catch up in a hurry and read my backlog of them in one sitting. Sometimes I just delete or archive them without reading them at all.

I read today’s one because of the email’s subject: “Trapped at the Top”

Here is what it had for me:

81% of South African households with daily per capita income of R500 or more have debt; for those below R500, 53% have debt. (Source: IES 2005/6)

R500 per day, which is just under US$66, works out at R182 500 per annum which is US$24 045. I use xe.com for currency conversations. However, please bear in mind that even though I have converted the Rand amounts into US dollar amounts, it does not mean that the above statistic holds true in the US or, for that matter, any country outside of South Africa.

So, to paraphrase the above, it says that more of the wealthier households have debt whilst fewer of the poorer households have debt. It doesn’t say anything about the AMOUNT of debt. This statistic just counts the number of households that have some (any) amount of debt and divides them into two cohorts – those who earn above R500 per capita per day and those below that earning rate.

Now I would like you to speculate wildly as to the reasons why the richer households are more likely to have debt. That’s the game.

I hope it inspires you to leave an interesting comment. If it doesn’t inspire you, bite me.

Tags: debt, R500, SA Fact a Day
Filed under Statistics |

5 Responses to “Play the game and guess the answer”

1. Barend Says:
   July 17th, 2008 at 12:17

   I think there is a few reason, the richer household living standards are higher, the more you earn the more you can borrow. A Financial Institution will more likely borrow money to a person earning R500 pd than a person earning R100-00 per day. Just something else. The richer should have more money to spend than the poor, the poor has a higher living cost than the rich. A person earning a R100 per day flogs out R30-00 transport R20-00 fuel for heating and making food with R50-00 a day he must live Well? Keeping two in mind thew price of food and the poor has bigger families to support there is no money left to pay dept…………………..

2. Richard Catto Says:
   July 17th, 2008 at 12:29

   @Barend: Thanks for your guess, Barend.

   I have spent some time thinking about this myself now, and I’d like to speculate wildly now too.

   I have a feeling that more of the wealthy have debt for two reasons, one of which you have given already:

   1. The wealthier people tend to be more investment savvy, so they’re more likely to go into debt to fund a project that is likely to have a higher ROI than the interest they have to pay back to the loaner. If they’re correct, they become wealthier.

   2. Wealthier people are able to access finance more easily than those less well off. This is the reason you supplied already, Barend, and I agree with you.

   Thanks for playing! Who’s next?

3. Barend Says:
   July 17th, 2008 at 13:46

   I am sitting on my building site looking through my window at my builders workers sitting having lunch, actually they are not having lunch because last week it rained and they only received 2 days pay. I do not think we realize the hard facts, how much people out there will never have excess to finance or banking they just cannot afford it. I would take wild guess about 40% in RSA

4. Richard Catto Says:
   July 17th, 2008 at 14:06

   @Barend: It’s difficult to force lenders to make loans to people without means to repay them.

   And when lenders have done so, serious problems have resulted as per the sub-prime mortgage crisis that occurred in the US recently.

   I think the wealthy get into debt in order to invest in wealth generating projects, such as property development, whereas poorer people get into debt to finance their consumption, and that gets them straight into the Debt Trap.

5. Nairobian Says:
   July 17th, 2008 at 15:14

   Those who have little borrow little so as to safeguard themselves from loosing the little they have, the rich borrow more to safeguard the more they have and or to maintain status quo!

   Nairobians last blog post..Entrecard Gets Serious About Comments !

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