Exploring financial literacy and debt levels of middle class households in Ngaka Modiri Molema District, South Africa

Abstract

In South Africa, household debt among middle class families remains high despite government efforts to encourage savings and reduce debts. The situation is aggravated by inadequate financial literacy levels among middle class households. Previous studies that have explored the relationship between household debt levels and financial literacy were focus on national level but none was focused at the Ngaka Modiri Molema District (NMMD). The objective of the study was to explore financial literacy and households debts levels among middle class in Ngaka Modiri Molema District, South Africa. The study utilised primary data from middle class households using structured questionnaires on socio-economic, micro and macro factors related to households’ debts as well as households’ financial literacy levels. A sample of 60 middle class households were drawn from a total population of 600 middle class households in the district. Micro and macro-economic data on financial literacy and household debt from the World Bank were also used to support the primary data. The study used the Pearson Product Moment Correlation and Logistic Regression (Logit) techniques to measure the degree of association and the likelihood of each factor affecting household debts as a result of inadequate financial education. The study found that, Age, educational status, gender, marital status, and employment were some of the socio-demographic factors strongly associated with household debts as a result of inadequate financial literacy. Using logistic regression to ascertain the chances of micro and macro level indicators impacting on household debts as a result of inadequate financial literacy, repo rate increases was found to have a significant effect on household debt and a slight chance of influencing household debt at 0.48 at p < 0.001. Furthermore, unemployment was positively associated with household debt at a coefficient of 1.03, and at p < 0.05 while wages and salaries levels slightly affected household debt by a coefficient of 0.62, and at p < 0.05. The study recommends targeted policies by government and financial institutions aim at boosting financial literacy and encourage savings by middle class household members to contain the escalating household debt situation in the district.