South Africans continue to face severe financial strain despite the suspension of load-shedding, the formation of a coalition government, reduced inflation and interest rates and the ability to access some retirement savings.
This is revealed in the latest DebtBusters Debt Index report — a quarterly evaluation of debt counselling applications.
According to the report, debt counselling inquiries increased by 6% while online debt management was up by 10% compared with the same period last year.
“During the most recent quarter, there have been many positive developments for consumer finances and sentiment: reduced inflationary pressures (particularly lower petrol prices), the first interest rate cut (albeit this happened near the end of the quarter) in several years, access to retirement funds (enabled via the so-called two-pot retirement system), no load-shedding and a new coalition government,” the report stated.
But it also found that income growth has not kept up with significant expenses and since 2016 electricity tariffs have increased by 135%, the petrol price has doubled, and inflation’s compounded impact is 46%.
“As a result, it is perhaps not surprising that consumers who applied for debt counselling in quarter three of 2024 needed 66% of their take-home pay to service their debt expenses. 82% of these consumers had a personal loan,” the report said.
“A further 53% of consumers had a one-month ‘payday’ loan — indicating that consumers continue to supplement their income with short-term unsecured credit, and personal loans, especially one-month loans have become a lifeline for many.”
Compared to 2016, those consumers who applied for debt counselling in quarter three of 2024 had:
• 44% less buying power — nominal incomes were 2% higher than 2016 levels, but when cumulative inflation growth of 46% is factored in for the same eight-year period, consumers’ purchasing power diminished by 44% over this period. While the inflation impact has subsided, consumers are feeling they are taking home 44% less today in real terms than they did in 2016.
• High debt service burden, with 66% of net incomes going towards paying debt — consumers need to spend about 66% of their take home pay to service their debt before coming to debt counselling, which is up sharply compared with the last several quarters and is the highest recorded level since 2017. Those taking home R35,000 or more per month need to use 72% of their income towards debt repayments and their total debt to annual net income ratio is 176%. Those taking home R5,000 or less per month, who are our most vulnerable, need to use 75% of their income towards debt repayments. These ratios are at their highest-ever levels.
• Unsustainably high levels of unsecured debt for top earners: unsecured debt levels were on average 22% higher than that in 2016 levels — this is lower than the same time last year and is a welcome development. For those taking home R35,000 or more, the unsecured debt levels were 52% higher. While this is only slightly higher than inflation growth, in absence of meaningful salary increases, it signals those consumers still need to supplement their incomes with unsecured credit.
“Alarmingly, the average interest rate for unsecured debt is now at an eight-year high level of 26.7% per annum, and is very close to the maximum allowable interest rate (ceiling rate) of 29% per annum,” said the report.
Benay Sager, head of DebtBusters, said income growth has not kept up with significant cost increases — and consumers are using short-term unsecured credit and personal loans to make up the shortfall.
“82% of people who apply for debt counselling have a personal loan and 53% a payday loan. This, at a time when unsecured interest rates are at 26.7%, close to the maximum 29%.”
“Debt counselling in South Africa works and benefits both consumers and creditors. Since 2016 the number of people who have successfully completed debt counselling has increased ninefold. In quarter three of 2024 alone consumers who received their clearance certificates paid back over R665m worth of debt,” said Sager.
Consumer sentiment is also reflected in PwC South Africa’s Voice of the Consumer Survey 2024: South African findings report.
Over 1,000 South Africans participated in the global survey which reflects the insights and perspectives of more than 20,000 consumers across 31 countries and territories on a wide range of issues, including finding value for money, caring for the environment, embracing AI and being open about their data.
It found that 77% of consumers expect the most significant increase in spending in the next six months to be on groceries.
At the same time, 75% of consumers rank inflation as the number one risk they believe could impact the country over the next year, followed by macroeconomic volatility (55%) and social inequality (40%).
“While consumers largely accepted the price increases of the Covid-19 era, they are showing little tolerance for continued rises, especially as they turn their attention to mounting non-discretionary spending.
“This has resulted in consumers searching for better value for their money, with 44% saying they would consider switching from their preferred brands to more affordable options, while only 7% said they would buy a luxury item with their leftover income after paying for bills and essentials,” said Anton Hugo of PwC Africa.
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