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Consumers continue to suffer financial effects of the pandemic

Published Nov 22, 2021


Martin Hesse

While the worst of the pandemic appears to be behind us and the economy has, in GDP terms, bounced back relatively strongly since plummeting last year, life for South African consumers is far from back to normal, as a number of surveys attest. For the average consumer, income levels are down, savings are down, and debt levels have risen – and yet many expect to extend their credit to cash in on Black Friday deals this week.

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A recent study by the National Credit Regulator indicates that consumers are struggling to repay their short-term debt. The study showed that credit cards were the type of credit most used (23%) by consumers to extend their debt, and the reason most cited was “late or missed payments” on unsecured credit transactions, implying that consumers are taking on more debt to pay off existing debt, a situation that can quickly lead to a disastrous debt spiral.

The TransUnion Consumer Pulse Study for the third quarter 2021 shows that 41% of consumers were in arrears for an account or loan in the three months to the end of September. A third (33%) reported missing one or two payments on accounts or loans, and 17% had missed three payments.

The TransUnion survey also showed how income levels have dropped. In August, 61% of respondents said their household income had been negatively affected by the pandemic. The main reasons household incomes decreased was as a result of job loss, and reduced salary and work hours. Of consumers who said their household income had decreased, 87% remained highly concerned about their ability to pay their accounts and loans.

Only 3% of consumers surveyed indicated their household finances had fully recovered since being impacted by the pandemic.

Another survey, by debt counselling firm DebtBusters, showed higher levels of debt among consumers seeking debt counselling. DebtBusters’ Debt Index for the third quarter shows that the situation for consumers struggling with debt is deteriorating.

“With no meaningful increase in real income, consumers continue to turn to unsecured credit to supplement their pay cheques. It’s a trend that we’ve seen intensify over the past few years,” says Benay Sager, head of DebtBusters.

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The latest index shows that, compared with five years ago, consumers who applied for debt counselling during Q3 2021 had:

  • Zero income growth and negative after-inflation (real) income growth. Nominal incomes were the same as 2016 levels, but taking inflation into account, real income shrank by 24% over the five years.
  • Higher debt-to-income ratios. The average ratio of overall debt to net annual income is 116% across all income bands. This is higher than during any comparable period since 2016. For people taking home R20 000 or more it is 145%, up from 115% five years ago. (Note that overall debt includes home mortgage debt, so it is to be expected that the ratio will be higher among homeowners.) A more pertinent ratio is the amount of monthly income being used to service debt: the monthly debt repayment to monthly net income ratio. In this instance, the median among consumers applying for debt counselling was 59%. This is only the median, however: many consumers are spending upwards of 70% of their income in servicing debt. “In our experience, consumers who spend 60% of their take-home pay to service debt should consider debt counselling, in fact those spending more than 40% of their take-home pay are probably not on sustainable financial footing and should seek out some advice,” Sager says.
  • Levels of unsecured debt that were, on average, 25% higher than 2016 levels. For consumers taking home R20 000 or more unsecured debt was 59% higher.

Sager says loan sizes have increased by 50% over the past few years, showing that people need access to more money due to their income not growing. However, the number of debt obligations have declined by 19%, “which points to consumers seeking help sooner”.

This is borne out by the fact that debt counselling enquiries were up by 17% compared with the third quarter last year.

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Lastly, savings are down. In a survey by Sanlam, 56% of respondents said their savings had decreased since the advent of Covid-19.

Conducted as part of Sanlam’s Letters to My Pre-Covid-19 Self campaign, the survey of 1 200 respondents further revealed that 57% of South Africans had experienced an overall negative impact on their finances, with 59% saying they had to change their spending habits. Finances were also named as a serious stressor for relationships and mental health.

Farzana Botha, segment solutions manager at Sanlam Savings, said: “Findings from the survey were humbling and thought-provoking. It’s clear this pandemic has caused many to re-evaluate what’s important. One silver lining is that 43% of participants said they’ve started talking about money more, 32% have set new financial goals and 31% said they’ve relooked their financial plans. Money talk is often taboo, so it’s encouraging to see households deciding to walk a closer financial journey together, during these tough times.”

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Neil Roets, the chief executive of debt counselling firm Debt Rescue, says the fact that consumers are struggling to make ends meet by using credit to afford their debt and living expenses, is “a very dangerous situation indeed, especially with Black Friday coming up”.

A recent survey by Debt Rescue among 1 000 South Africans revealed that 86% of women said they will participate in the Black Friday weekend, versus 15% of men, and among all shoppers, a noteworthy 60% will buy their goods on credit, instead of missing out on a good deal.

If you’re planning to spend on Black Friday, Roets advises that you draw up a plan – and then stick to it. “Have a set budget of the amount you can afford to spend. Then do your homework into what you want to buy so that you don’t get caught up in the frenzy of shopping for the sake of it. Know your prices, as the deals aren’t always as good as they seem.”