South Africans’ propensity for con-sumption and indebtedness re-ceives constant attention from the media, economists and monetary

authorities. A concern, for example, is the South African Reserve Bank measure-ment that the ratio of indebtedness as a portion of household disposable income rose by 44% between 1994 and 2008.

Increased domestic spending can be a positive stimulus for economic growth, but not when it happens at the cost of do-mestic savings. Although the South Af-rican government has promoted policies to encourage savings, the rate of domestic savings has declined from 9% of GDP in the 1960s to just more than 4% in the 1990s, and to below 2% in 2005. With the consistent growth in GDP and house-

hold income in recent years, the decreas-ing trend in savings implies an increase in consumption as well as an increase in the use of debt to fund consumption.

Two factors play a role in the increas-ing reliance on debt to fund consump-tion: easier access to sources of credit, and changes in consumer behaviour. A study conducted in South Africa, for example, found an increase in the use of debt by people in the lower-income brackets. Moreover, a study by the Human Sciences Research Council found that debt levels have also been rising faster in the lower-income category than in other income categories. Official statistics and studies like these suggest that low-income con-sumers show increasing materialistic ten-dencies. Monetary authorities have rea-

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Can materialism explain indebtedness among low-income consumers in SouthAfrica? A study suggests the causes may be more complex.

by Glenda Jacobs and Eon Smit

| CONSUMER ATTITUDES

Materialism and

debt among low-income consumers

son to be concerned about the general increased desire to buy.

However, while the authorities view consumption levels with unease, busi-nesses have shown a keen interest in the growth in spending in low-income markets. There are therefore also fears about opportunistic forces that may exploit consumerism trends in the low-income market – driving up debt levels.

In order to contribute to this de-bate, a study done at the University of Stellenbosch Business School (USB) sought to provide more insight into the patterns of debt and materialism among low-income consumers.

The notion of materialismMany researchers worldwide have studied materialism as a concept in consumer behaviour. It is often de-fined as the importance a consum-er attaches to possessions and has also been closely associated with consumption, as well as with the propensity of a person to borrow money for consumption. Credit gives individuals the advantage of immediate consumption while only paying in the future. Buying on credit is especially appealing to materialistic consumers, as this allows them to satisfy the desire to own possessions more quickly.

Whether one enjoys buying goods, owning them, or showing them off to others – all of these are expressions of materialism. Those who are high on the materialism scale are seen as people who de-fine themselves by what they pos-sess. Those at the low end of the scale tend to lead simpler lives un-cluttered by material possessions.

A database of low-income consumersThe database of HomeChoice (Pty) Ltd, which has been conducting busi-ness in the low-income retail market

for more than 20 years, was used as a sample frame for the USB study. Be-cause HomeChoice offers goods on credit, it has accumulated a mass of information about its customers. The database with approximately 160 000 active consumers was seen as a valuable resource for studying low-income con-sumers.

Moreover, HomeChoice sells home décor and furnishing products, which are non-essential household items. The decision to purchase such items is more likely to be influenced by materialism than by necessity. Another important aspect of this particular consumer base is that customers have the option to buy on credit. Therefore the HomeChoice consumer base was suitable for explor-ing the propensity to incur debt for consumption.

Choosing one customer base for a study of this nature limits the extent to which findings can be generalised as typical of all low-income consumers in South Africa. Nevertheless, the avail-ability of such a database presented a valuable opportunity to gain more in-sight into the phenomenon under scru-tiny – one that could not be ignored despite the limitations.

Measuring materialism and indebtednessGlobally, there has been a substantial focus on the study of materialism and especially on measuring materialism by way of questionnaires. The instrument used in the USB study was one that had been developed and adapted by several researchers over time: a short-ened nine-item version by Richins, as adapted later by Ponchio and Aranha in 2008. Each item is ranked on a scale ranging from 1 (strongly disagree) to 5 (strongly agree).

To measure the level of indebted-ness, respondents had to provide the number of retail store accounts they hold. To make it easier, they could tick against a list of stores that offer ac-counts to customers. Blank space was added to allow them to fill in accounts that were not on the list.

The nine-item scale follows a value-based perspective of materialism, which sees materialism as defined by three di-mensions: the centrality of acquisition as a prime desire, the pursuit of happi-ness brought by owning desired items, and the image of success that is reflect-ed in the possession of desired items. The questionnaire is shown in Graphic A below:

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Materialism and

debt

8 Happiness It bothers me that I can’t afford to buy all the things I like

1 Success I admire people who own expensive homes, cars and clothes.

6 Success I like to own things that impress people

9 Success Some of the most important achievements in life include acquiring material possessions

GRAPHIC A: THE MATERIALISM QUESTIONNAIRE

Item Dimension Description

2 Centrality I like spending money on many different things

4 Centrality Buying things gives me a lot of pleasure

7 Centrality I like a lot of luxury in my life

3 Happiness My life would be better if I owned many of the things I don’t have

5 Happiness I’d be happier if I could afford to buy more things

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LEADERS’ LAB | CONSUMER ATTITUDES

The questionnaire was slightly sim-plified, but kept in English, since HomeChoice frequently conducts mailed market surveys among its cus-tomers in the English language. Before the questionnaire was sent out, howev-er, it was pretested with a group of typi-cal HomeChoice customers. This step ensured that the questions were clear and easily understood by the target group. The questionnaire was printed in the HomeChoice Club magazine, which is mailed to HomeChoice cus-tomers on a bi-monthly basis.

The survey generated 217 responses from people reporting an income below R7 000 per month, which was the tar-geted maximum income level.

Results of the analysesMaterialism scores

The first part of the investigation fo-cused on the materialism scale. The analysis started by calculating the aver-age scores per item as well as the to-tal materialism score. The findings are shown in Graphic B. In interpreting the scores, it must be kept in mind that the neutral score is three; scores above three reflect relatively higher levels of materialism on a particular item; and scores below three reflect lower materi-alism levels. Similarly, for the total ma-terialism score, values above 27 show relatively higher levels of materialism.

From the analysis it can be deduced that the population sampled reflects moderately high levels of materialism. This is particularly evident in the total materialism score of 29,93. The three highest scoring items were: I’d be hap-pier if I could afford to buy more things (3,94); Buying things gives me a lot of pleasure (3,75); and It bothers me that I can’t afford to buy all the things I like (3,62). The higher scoring items were in the happiness and the centrality di-mensions. The three lowest scoring items were all in the success dimension. The scoring per dimension is illustrated in the next analysis.

Item Question Dimension Average score

Rank

1 I admire people who own expensive homes, cars and clothes

Success 3,06 7

2 I like spending money on many differ-ent things

Centrality 3,53 4

3 My life would be better if I owned many of the things I don’t have

Happiness 3,47 5

4 Buying things gives me a lot of plea-sure

Centrality 3,75 2

5 I’d be happier if I could afford to buy more things

Happiness 3,94 1

6 I like to own things that impress peo-ple

Success 2,47 9

7 I like a lot of luxury in my life Centrality 3,12 6

8 It bothers me that I can’t afford to buy all the things I like

Happiness 3,62 3

9 Some of the most important achieve-ments in life include acquiring material possessions

Success 2,97 8

Total materialism score 29.93

GRAPHIC B: AVERAGE MATERIALISM SCORES

Green shows the top-ranked items; grey shows the lowest-ranked items.

‘based on the results of this sample, the over-50 age group is less materialistic

than the 25-34 age

group’

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Graphic C shows the average scores of the total sample of 217 on the three di-mensions of the materialism scale. As each dimension is measured by three items, the maximum possible score is 15 per dimension. The neutral score is nine. The results indicate that the image of success attached to owning possessions is not as important as the happiness brought by owning posses-sions and the enjoyment of the action of buying. This result differs from pre-vious studies done in Asia, in which success was the strongest dimension, but it is similar to studies done in Rus-sia and Brazil. According to the results, the population sampled is more likely to view possessions and purchases as necessary for own well-being, but less likely to buy items to impress other people.

GRAPHIC C: SCORES OF MATERIALISM DIMENSIONS

The data were subsequently analysed to see whether there are differences be-tween age groups, gender, and income levels. Graphic D shows that there are distinct differences between age groups and materialism scores. Especially the age group over 50 years shows relatively lower materialism tendencies. It was, however, important to examine wheth-er these differences resulted by chance or whether they reflected statistically significant differences. Further statis-tical tests revealed that the difference between age groups 25-34 and over 50 is statistically significant. It can there-fore be stated that, based on the results of this sample, the over-50 age group is less materialistic than the 25-34 age

group. The other differences are not statistically significant, and one cannot make a similar claim.

GRAPHIC D: COMPARISON BY AGE GROUP

Green indicates statistical significance in the difference between categories.

Graphics E and F show the differences between materialism on the one hand and gender and income levels respec-tively on the other. The differences are relatively small, and none of them are statistically significant.

GRAPHIC E: COMPARISON BY GENDER

GRAPHIC F: COMPARISON BY INCOME LEVEL

Correlation between materialism and indebtedness

The next part of the analysis was done to test the relationship between the level of indebtedness on the one hand, and materialism and the demographic

Dimension Average

Success 8,49

Centrality 10,40

Happiness 11,03

Age Group N Average

Between 22 and 24

10 27,50

Between 25 and 34

69 31,70

Between 35 and 49

91 30,53

Over 50 47 26,68

Gender N Average

Male 44 30,55

Female 173 29,77

Income level N Average

R500 to R2 000 86 29,31

R2 001 to R 3 000 39 30,51

R3 001 to R 4 000 40 30,63

R4 001 to R7 000 52 29,96

This article is based on Glenda Jackson’s research report titled Materialism and indebtedness of low-income consumers: A survey based on South Africa’s leading catalogue retailer for her Master’s in Development Finance, which she obtained from the University of Stellenbosch Business School (USB) in March 2010. Her study was supervised by Prof Eon Smit.

An article by these two authors subsequently published in the South African Journal of Business Management, 41(4), December 2010, under the title Materialism and indebtedness of low-in-come consumers: Evidence from South Africa’s largest credit-granting catalogue retailer, received the award for the best article from student research at the USB’s March 2011 award ceremony.

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LEADERS’ LAB | CONSUMER ATTITUDES

variables on the other. The level of in-debtedness was measured by the num-ber of store accounts people held. It was found that the range was between one and eight accounts, but that the ma-jority of people held four accounts or fewer. The average was 2,74 accounts.

An analysis to determine the corre-lation between the number of accounts (level of indebtedness) and materialism as well as the measured demographic variables is summarised in Graphic G (above).

The analysis shows that there is very little relationship between materialism and the level of indebtedness. Indebt-edness is rather related to demographic factors such as income, gender and age. Although these relationships are small, they are statistically significant.

The relationship between the four variables and indebtedness was further tested by way of a regression analysis. The resulting regression model was rather weak, with a relatively small coefficient of determination of only 8,03%. Moreover, only the variables age and gender showed a statistically significant fit in the regression model built to explain indebtedness. Materi-alism and income level did not play a statistically significant role in the re-gression model.

A need for more researchWhat this study shows is that our un-derstanding of indebtedness among low-income consumers is rather lim-ited. Although the study pointed out that low-income consumers show rela-

tively high materialism levels, material-ism scores did not show a relationship with indebtedness scores in this par-ticular sample group. The two variables that did show a significant relationship with indebtedness, namely age group and gender, did so in a rather soft way. Together they could explain only 8% of the variability in the levels of indebted-ness of the respondents.

Since there is a growing interest among policy-makers to increase eco-nomic participation by the lower-in-come levels in South Africa, and like-wise among businesses to tap into the potentially huge market at the base of the economic pyramid, a better under-standing of the social risk involved is necessary. More research is required to ensure that this market is approached in an ethical and responsible way.

Variable tested against indebtedness

Correlation coefficient

p-value Comment

Materialism 0,08 0,2164 Very low correlation and statistically insignificant

Income level 0,13 0,049 Low correlation but statistically significant

Gender 0,16 0,016 Low correlation but statistically significant

Age group -0,19 0,005 Low negative correlation but statistically significant

GRAPHIC G: TEST FOR CORRELATION

A p-value of 0,05 or less implies statistical significance

Glenda Jackson Eon Smit