Debt to asset ratio

[TheShadow]

Hi all,

I've been wondering what would be considered a good personal debt to asset/equity ratio in SA.

This would of course vary according to age and phase of life. I would expect a recent graduate with student loans to have a far worse ratio than an experienced professional.

I would in particular like to know your thoughts for a single individual in the 30-35yr range.
I don't believe location should play a huge role as our country is relatively small and prices are more or less the same everywhere.

My guess would be that as a society the ratios will be rather dreary given what we read in the news.

Thanks

 

[HavocXphere]

I doubt you'll get good answer to that...it'll be all over the place.

e.g. I've got access to debt at near zero cost...so I keep my debt/asset ratio artificially high to take advantage of that. If I opt to buy a house it'll throw out the ratios by a couple 100 percent.

Personally I find that the percentage of their income people save for retirement is a better indicator...it hints at ability to plan, restraint and self-control.

personal debt to asset/equity ratio

Measuring debt/equity ratio in this context is meaningless. Not just from a definition point of view, but also common sense.

e.g. Say you've got R1000 in the bank, now you buy a R1m home on debt....so you're debt to equity ratio just went from zero to 100000%....even though nothing really changed on a net basis.

People are not companies...

 

[Boomstomp]

I doubt you'll get good answer to that...it'll be all over the place.

e.g. I've got access to debt at near zero cost...so I keep my debt/asset ratio artificially high to take advantage of that. If I opt to buy a house it'll throw out the ratios by a couple 100 percent.

Personally I find that the percentage of their income people save for retirement is a better indicator...it hints at ability to plan, restraint and self-control.



Measuring debt/equity ratio in this context is meaningless. Not just from a definition point of view, but also common sense.

e.g. Say you've got R1000 in the bank, now you buy a R1m home on debt....so you're debt to equity ratio just went from zero to 100000%....even though nothing really changed on a net basis.

People are not companies...

not really. You would have to factor in the house as capital as well...

I think you also need to seperate good debt (like a homeloan, or load to finance assets [no, a car is not an asset!]) and debt used to fund living expenses or other things.

 

[TheShadow]

banks sometimes ask for balance sheets when doing credit vetting.
surely this practice implies that there is some validity is analyzing one's debt/asset ratio?

 

[Greig Whitton]

I think you also need to seperate good debt (like a homeloan, or load to finance assets [no, a car is not an asset!]) and debt used to fund living expenses or other things.

^ This!

You would also need to define "asset" in a personal (as opposed to business) context. Does a personal asset only become an asset when it generates income? Or can a non-income generating personal asset still be considered an asset provided that it has value upon disposal?