With increased costs and debt levels rising, consumers are starting to feel increased financial pressure in South Africa. Consumers are currently facing a trend where even the high income earners are starting to succumb to financial stress. While their incomes often provide them with financial security and stability, even those that were historically “better off” have started feeling the increased pressure.
The Current Economic Landscape In South Africa
South Africans have seen a difficult start to their 2023 financial year. With increases in the price of food, water, electricity, fuel prices, loadshedding, and a weakening currency, many consumers have been forced to rely on some form of credit. With this, the additional reliance on credit has further inflated their total monthly expenditure. This has caused a significant decrease in disposable income across the board. The recent bout of interest rate hikes has not contributed promisingly to these impacts either. Across the board, debt has become more expensive along with the prices of general goods and services.
Relative Lifestyle Inflation
Among South Africa’s large earners are corporate executives, skilled professionals and entrepreneurs. These individuals enjoy substantial monthly salaries and benefits and have relatively larger affordability levels. However, these individuals often have the desire to maintain a certain lifestyle or keep up with their friends or family. This can lead to increased overspending and spiral of debt.
Many large earners fall into the trap of overextending themselves financially, this is known as lifestyle Inflation. This is mainly due to the fact that they are able to take on multiple credit facilities with ease of access to credit. Subsequently, this can lead to the large earners accumulating debt that becomes more and more difficult to manage each month. Moreover, this can lead to these individuals falling into a debt cycle. High interest loans with high balances can quickly add up.
According to Eighty20, Nearly 99% of home loan balances are held by the Heavy Hitters (76%), Middle Class Workers (17%) and Comfortable Retirees (6%) segments. The Heavy Hitter segment accounted for R87bn (11% YoY) growth in balances.
Consumer Personas
| Average Monthly Instalments | Average Instalments to Monthly Income Ratio | |
| Mothers Of The Nation | R578 | 26.7% |
| Mass Credit Market | R1 999 | 36% |
| Middle Class Workers | R10 267 | 70% |
| Heavy Hitters | R20 939 | 60% |
Relative Debt Levels
Consumer debt levels in South Africa have been a cause of concern and has been affecting consumers across various income levels. The availability of credit to consumers coupled with the pressure to maintain a certain standard of living has led to significant spikes in consumer debt levels.
Along with the increased use of credit cards, home loans, vehicle financing and personal loans have also been a common contributing factor to increased consumer debt. The increased use of credit combined with stagnant salaries has made it challenging for South Africans to keep with their debt repayments. This has caused many to fall behind on payments which accumulate more fees and higher balances and therefore further extending their repayment period.
Consumers Are Desperately Seeking For Cashflow Relief
The Covid-19 Pandemic severely affected the livelihoods of many South African consumers. With disruptions in the job market, consumers are still feeling the effects of Covid-19 in terms of their debt. Evidently, consumers faced severe reductions or job losses in their salaries and had to rely on credit extended to them from credit providers in order to survive. Fast forward a few years, consumers are still feeling the financial pressure from Covid-19 pandemic.
What Options Are Available For Over-Indebted Consumers?
Debt Counselling was created to get over-indebted consumers out of their debt. This process allows an NCR registered debt counsellor to assess your current financial situation and determine whether they are able to assist you with a new, affordable monthly repayment plan. The debt counsellor will then formally renegotiate with your credit providers to reduce your monthly instalments and interest rates.
Once all your debt has been settled and paid, you will be issued with a clearance certificate. This allows for your credit record to be restored and any adverse information to be cleared from your credit record. With debt counselling, your credit score will also significantly improve over time during the process. This will allow you to obtain new loans or apply for any finance option.