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We’re getting a hard lesson on how to live more frugally

By Martin Hesse Time of article published Jul 27, 2020

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WORDS ON WEALTH:

Each year in July – Savings Month – Old Mutual releases its Savings and Investment Monitor, a survey of working households in our metropolitan areas on how they are coping financially, pinpointing trends in spending and saving.

And each year the results are a little depressing, showing the low priority most people give to saving and their high levels of debt.

But the surveys find that, on the whole, households get by, even if the way they manage their finances leaves a lot to be desired.

This year, however, given our surreal circumstances in the midst of the Covid-19 crisis, the results were understandably shocking, highlighting just how severely households were affected and just how desperate their situation had become, virtually overnight.

The survey, released last week, was carried out online, as opposed to past practice of householders physically answering questionnaires. It was conducted between May 29 and June 23 – under the harsh conditions of lockdown level 3, from which we have yet to emerge. There were 1 500 respondents, 50% more than the usual 1 000 or so.

It shows that 58% of households are facing high or overwhelming financial stress levels as they plunder their savings and take on more debt to meet expenses.

A key finding is that 57% of households are earning less than they were at the end of February, while 40% of those currently employed have enough funds to survive for only one month or less if they lose their jobs. Two-thirds (66%) of the respondents stated they are constantly worried about losing their job or their income.

A shocking finding is that 41% of low-income earners have seen their income drop by between 50% and 75%.

Lynette Nicholson, the head of research and insights at Old Mutual, who gave a webinar presentation on the survey, says: “An alarming consequence of the financial pressures South African households are experiencing is that just over 50% are currently dipping into their savings just to make ends meet, 37% have fallen behind on paying household bills and 23% have cashed in a savings or investment policy.

“Another indicator of the distress the crisis has caused is that only one in two credit card holders are able to comfortably make their repayments every month.”

Debt, which has always been a problem among South African consumers, is rocketing: 43% of respondents have personal loans from financial institutions (up from 21% last year), 19% of respondents have borrowed money from family or friends (up from 13% last year) and 12% have borrowed from micro-lenders (up from 5% last year).

The Old Mutual Sandwich Generation Indicator shows those who are sandwiched between supporting their own children and helping to care for elderly parents or relatives increased from 34% in 2019 to 42%, the highest figure recorded for this category.

“There is no doubt that the pandemic and its effect on our economy has intensified the already dire position of households, placing unprecedented strain on budgets, savings and overall financial well-being,” Nicholson says.

Emergency measures

You may argue that desperate times call for desperate measures, and that if this does not constitute an emergency during which to fall back on emergency savings or to take out a loan, what does?

Of course, you are right regarding the depth of the crisis we are facing. I have not experienced anything like this in my lifetime, and only older folk who lived through World War II would have something with which to compare it.

It’s just that economically we are in for a long, rough ride, even after we come out the other side of the pandemic. So any further debt you take on now will compound your financial problems in the coming months. And any delving into emergency funds will reduce your resilience to future shocks.

You may have no choice – you may have already tightened your belt as much as you can. But if you are delving into savings or taking on debt to maintain your pre-Covid-19 lifestyle before cutting back where possible, you are setting yourself up for misery ahead.

I dread to think of what is in store for us if our economy is not fully back on its feet by the end of the year and if a large proportion of the now three million unemployed are not back at work. History has taught us repeatedly that when people are hungry they become politically radicalised, which means that on top of financial pressures we could be facing social and political upheaval.

The age-old adage “Hope for the best, prepare for the worst” may never be more relevant.

PERSONAL FINANCE

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