Impact of credit facilities on savings among middle income earners in the North West Department of Education

Abstract

Savings play a critical role in any economy. It is income put aside for future use or investment. Household savings refer to disposable income that is not used for current consumption. There is evidence that South Africa lacks savings and this could be attributed to income inequality, demographic trends, financial liberalisation, social security net and other factors noted in the research. The main purpose of this study was to investigate the impact of credit facilities on savings. This study was prompted by the fact that close to five million South Africans is over-indebted and most fall in the middle income category. This means the greater portion of their income is directed towards repayment of debt leaving little or nothing for savings. Structured questionnaires were distributed among educators in Bojanala district, North- West Province in order to obtain data that would answer the research question for this study. The results show that the majority of respondents overwhelmingly committed 30% of their gross monthly income to instalments. Some fail to keep up with the repayments and end up in serious debt. This has got serious repercussions on savings as many households fail to save even a little for future use. The research also shows that extension of credit facilities has got a negative impact on the savings levels of households. In other words, the more people enter into debt, the less they have left for savings after debt repayment. However, one must take cognizance of the benefits of credit extension and its role in the growth of a country’s economy. For instance, extension of credit facilities enhances efficiency in the financial sector, especially on intermediation thus boosting investment levels. This in turn has a positive effect on economic growth. In the long run, private savings are bound to increase. Literature review reveals that regulations governing the credit market are not strictly enforced as evidenced from reckless lending by credit providers. The National Credit Regulator has failed to meet its expectations. The rampant sprouting of unregistered money lenders also bears testimony to this. Such anomalies in the credit market have serious negative impact on borrowers who are in precarious debt situations. The research recommends for the establishment of a regulatory framework ensuring adherence to operator regulations in the credit market. There is an overwhelming need for further studies focusing on various dimensions of savings.