Debt remains big salary drain, but Gen Z and millennials expect cash hike in 2025

South Africans are spending nearly 70% of their monthly income to service debt, with higher-income earners under increasing pressure.

This is revealed in the latest Debt Index report for the fourth quarter of 2024 released this week.

It also shows consumers have 42% less purchasing power than in 2016, as well as unsustainably high levels of unsecured debt and debt-to-income ratios at their highest-ever levels among several income bands.

The release of the latest Debt Index by Debt Busters coincides with National Debt Awareness Month in February.

According to the index report, while consumers’ financial confidence may have improved, some trends have not.

Income growth — while better than past years — is still behind expense growth. Since 2016 electricity tariffs have increased by 135%, the petrol price by 72% and inflation’s compounded impact is 44%.

“As a result, it is perhaps not surprising consumers who applied for debt counselling in Q4 2024 needed 68% of their take-home pay to service their debt expenses.

“82% of these consumers had a personal loan. A further 52% of consumers had a one-month (payday) loan — indicating that consumers continue to supplement their income with short-term unsecured credit.”

Compared with 2016, those consumers who applied for debt counselling in Q4 2024 had:

• 42% less purchasing power: nominal incomes were 2% higher than 2016 levels, however when cumulative inflation growth of 44% is factored in for the same eight-year period, consumers’ purchasing power diminished by 42% over this period.
• Those taking home R35,000 or more per month had better news: the nominal incomes for this band increased by 10% since 2016, the first such significant increase for a long time. While the inflation impact has subsided, on average consumers are feeling like they are taking home 42% less today in real terms than they did in 2016.
• High debt service burden with 68% of net incomes going towards paying debt: Consumers need to spend about 68% 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 74% of their income towards debt repayments and their total debt to annual net income ratio is 187%. 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 29% higher than 2016 levels. For those taking home R35,000 or more, the unsecured debt levels were 60% higher.

“While this is only slightly higher than inflation growth, in absence of meaningful salary increases, it signals that consumers still need to supplement their incomes with unsecured credit,” said Benay Sager, executive head of Debt Busters.

He said 2024 was a year of two ‘chapters’.

“The first was full of financial anxiety: load-shedding, high interest rates, high food inflation and worries about the national election.

“The second ‘chapter’ was one of financial relief: no load-shedding, lower food inflation, relief about the formation of a coalition government and being able to access retirement funds via a ‘two-pot’ system. As a result of this positive second half, 2024 was a better year than 2023 for South African consumers.

“82% of those who applied for debt counselling during the quarter had a personal loan and 52% a one-month loan. This indicates consumers continue to supplement their income with short-term loans and personal loans have become a lifeline for many people,” Sager said.

Meanwhile the latest Consumer Pulse Study by insights company TransUnion for the last quarter of 2024 found increased confidence in South African household finances, despite concerns about inflation and access to credit.

According to the study of 1,000 participants, 79% of South African consumers expect their income to increase in 2025, especially Gen Z and millennials.

Digital fraud remains a concern with 13% of consumers falling victim to scams, highlighting a need for increased cybersecurity awareness and protection.

“Our findings indicate while financial stability and optimism are growing, there’s still concern about critical themes like inflation and credit access, where consumers continue to feel the economic pressure,” said Fatgie Adams, head of Credit Risk Solutions at TransUnion Africa.

The report shows consumer confidence in income growth is higher than in previous quarters, with 79% of respondents expecting their income to increase this year, up from 76% in the third quarter of 2024, and from 74% in the fourth quarter of 2023.

20% of households reported a decrease in income in the fourth quarter, a small improvement over the previous quarter, while 42% of households said their income remained the same.

Optimism about income is particularly strong among younger generations, with 86% of Gen Z and 85% of millennials anticipating improved earnings.

The report shows credit access remains a top priority for South African consumers, with 93% indicating that access to credit is essential for achieving financial goals.

But only 38% feel they have adequate access, a slight decline from the third quarter.

Demand for new credit has increased, with 37% of consumers planning to apply for new credit within the next year.

Interest is strongest among Gen Z (41%) and millennials (45%), with credit cards, personal loans and ‘buy now, pay later’ services among the most sought-after options.

“Despite this demand, 54% of respondents ultimately decided not to pursue credit applications, with 31% citing the high cost of credit as a deterrent, even after the recent interest rate cut.

“Other factors included finding alternative funding sources (30%) and concerns about income or employment stability (28%). These findings highlight a disconnect between consumer demand for credit and the challenges posed by high costs and economic uncertainty,” the report states.