Illustration: Mangena

Financial stress is believed to be causing mental and other health problems. Data from different sources shows that many South Africans are burdened by high levels of debt and are living from pay-cheque to pay-cheque. 

Myrna Sachs, the head of Alexander Forbes Health Management Solutions, says financial difficulties and mental health problems create a vicious circle. “Mental health problems, including depression, stress, anxiety and panic disorders, result in absenteeism. Looking after our mental health is, therefore, key to our overall well-being. Unfortunately, financial problems affect mental health.

“Poor work performance has a knock-on effect on promotions and bonuses, which further reduces earnings progression,” says Sachs.

A study conducted last year by Idea, a unit at the London School of Economics, showed that depression costs South Africa more than R232 billion a year in lost productivity. This is a result of absenteeism or attending work while unwell.

Research by EuroMonitor has found that some South Africans are neglecting their eyes to save money. The research found that declining disposable incomes have resulted in fewer spectacles being sold and that many wearers of corrective eyewear are not replacing their frames and lenses, because they cannot afford to do so.

Defaulting on debt 

Experian’s new Consumer Default Index (CDI) shows that pressure to default on loan repayments persists among economically challenged consumers. The CDI measures the rate of first-time default of South African consumers with home loan, vehicle loan, personal loan and credit card accounts.

According to Experian, the index “tracks the marginal default rate as it measures the sum of first-time defaulted balances (accounts that have never defaulted before) as a percentage of the total sum of the balances outstanding”.

Between May and July this year, the first-time default balance for all loan categories was R13.4 billion.

Personal loans, which represent the riskiest type of debt, had the highest first-time default rate of 8.54% in July this year, down from 9.56% in July 2016. 

Credit card debt had the second highest first-time default rate of 6.91%, but had improved from 7.32% in July last year.

Vehicle loans were the only type of loan where the rate of first-time defaults increased between July last year and July this year, from 2.85% to 3.13%.  

The first-time default rate for home loans remained virtually unchanged at 1.84% in July.

The CDI also measures the first-time default rate of different consumer groups, which Experian bases on socio-demographics, lifestyles, behaviours and culture.

What Experian calls “Indigent township families” experienced a significant deterioration in the first-time default rate, from 7.13% in July last year to 8.15% in July this year.

This consumer segment consists mainly of people aged 25 to 29, have limited education beyond grade 12, have an average annual household income of less than R38 200, and live in rented informal dwellings. 

This segment had the worst performance with regard to first-time defaults on credit cards (12.25%) and personal loans (11.85%). 

Experian said that, because people in this segment earn low incomes, they often rely on unsecured lending to finance their lifestyle, and they may not be sufficiently financially literate to manage their debt properly.

At the other end of the spectrum, Experian found that most credit was advanced to consumers in the “Hard-working money” segment, which had total credit exposure of R203.25bn between May and July. 

This segment consists mainly of educated people aged between 35 and 49 who belong to households with an average annual income of more than R150 000, and who live in houses that are not yet paid off in suburbs located around industrial and mining areas.

The CDI for consumers in this segment improved to 2.99% in July this year from 3.13% last year.  

Simon Russell, the managing director of Experian South Africa, says the findings highlight the link between education and the ability to manage finances. “Education remains a recurring challenge in the South African context, and the CDI reinforces the importance of this as a fundamental foundation to tackle over-indebtedness and help drive economic growth.” 


TIPS TO REDUCE YOUR MONEY WORRIES

• Budget. You might think that drawing up a budget will add to your financial stress. But a budget is a useful tool for getting your finances under control, which will reduce your worries about money.

• Set up an emergency fund. You can start by putting aside, say, R300 a month. You can also sell items you no longer need and put the proceeds in a fund for unexpected expenses or emergencies.

• Seek outside help. If you feel overwhelmed and can’t control your spending, you need should seek help from a financial adviser or debt counsellor, who can guide you on how to better manage your finances.

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