Durban — Buckle up. Last year’s wild financial ride is set to continue this year as geopolitics, personal debt, load shedding and interest rate hikes converge to create a perfect storm and empty your pockets.
Experts say South Africa’s financial situation is as tenuous as that of its citizens, with huge chunks of the country’s and personal budgets being used to service debt –‒ and this year could be even worse.
This week DebtBusters released its quarterly debt index which showed that the demand for debt management increased considerably in the last quarter of 2023.
DebtBusters executive head Benay Sager said 2023 was probably one of the most financially difficult years on record for South Africans because high inflation (especially food, electricity and petrol) and high interest rates (which are now 475 basis points higher than in 2020) combined to erode disposable incomes. Consistently crippling levels of load shedding made it nearly impossible for any meaningful economic growth for businesses.
While the debt index showed that many still relied on credit cards and payday loans as cash flow management tools, consumers remained proactive in managing their credit and more men were reaching out for help.
However, Sager said that compared with 2016, those consumers who applied for debt counselling had 39% less purchasing power, a higher debt service burden with 62% of net incomes going towards paying debt and unsustainably high levels of unsecured debt. Those in the middle income brackets were bleeding profusely.
“The debt-to-income ratio for the top two income bands is higher in Q4 2023 compared with the same periods in the past: 131% for those taking home more than R20k a month and 171% for those taking home R35k or more a month. These ratios are at or near highest-ever levels,” Sager said.
The debt index also showed that more people with vehicle debt were now seeking financial assistance. Sager said debt counselling was the best tool to help consumers service vehicle debt and balloon payments over a meaningful period of time by getting the average financed vehicle interest rate of 15.6% per annum negotiated down to a more manageable level.
“One of the unfortunate things about balloon payments is that they are not reported at the credit bureau. So it’s really a difficult guessing game until you get the specific agreements to know what the balloon size is. And I suspect the same is true for consumers. Many of them kind of forget they have this balloon payment until it comes up at the very end,” he said.
On the positive side, Sager said the number of consumers who successfully completed debt counselling was six times higher than in 2016, while consumers who successfully completed debt counselling in Q4 2023 paid back more than R500m worth of debt to their creditors as part of the process.
Doctor Bhasela Yalezo from UKZN’s Graduate School of Business said things were only going to get worse as the year progressed and that President Cyril Ramaphosa’s “dull” State of the Nation Address did nothing to inspire confidence. He said the Budget speech would paint a clearer picture because “numbers don't lie”.
He said even if geopolitics was excluded (which could have an impact on the price and availability of imported goods), South Africans were still saddled with an inefficient government and nothing was going to improve the economic situation in the short term.
“The economy is not growing, unemployment is still high, the crime rate is still high, the administration is performing poorly, the ministers – and the president – have not really performed, and the elections are coming. Things are going to get worse before they get better. I don't see anything getting better, especially for the unemployed,” said Yalezo.
In addition, he said that after an election the new administration always needed time to adjust, even if the ANC won again, and so there was no relief on the horizon for cash-strapped South Africans.
Dr Marion Borcherds, senior manager and head of wellbeing at AfroCentric, a Sanlam subsidiary, said the effects of debt were not just felt in the pocket but had a real impact on physical and mental health. She said financially stressed people were twice as likely to report poor overall health and four times as likely to develop certain health conditions.
“It’s crucial that people understand and manage the symbiotic dance between their health and finances. Financial wellness is when you can meet money-related needs, feel secure about your financial future, and not stress about money.
“This state of financial health can dramatically improve your life and prevent hardships. With financial health, you can reach goals and pursue more opportunities, which improves your quality of life.”
Borcherds said 70% of participants in an Afrocentric well-being programme said their salary did not cover monthly expenses. She said while 94% contributed to retirement savings, only 8% had engaged with a financial planner, and most people, 65%, were burdened with short-term debt which underscored the need for financial literacy and coaching in the workplace.
“Financial stress directly impacts mental and physical health because it causes significant hardship. This can lead to anxiety, depression, and even other problems such as relationship troubles and ill health. Debt and financial stress are often a precursor to poor mental health,” she said.
Independent on Saturday