Financial stress soars in SA

The annual survey provides insight into what is happening to working urban household finances in real time, well before it reflects in macroeconomic statistics.
The annual survey provides insight into what is happening to working urban household finances in real time, well before it reflects in macroeconomic statistics.

BUSINESS


Financial stress has soared, with 58% of households across South Africa facing high or overwhelming financial stress as the Covid-19-induced economic crisis knocks savings and raises debt levels.

This is just one of the alarming figures revealed in the latest Old Mutual Savings & Investment Monitor.

The annual survey provides insight into what is happening to working urban household finances in real time, well before it reflects in macroeconomic statistics.

It gives insight into the behaviour and adaptations that households make to changing circumstances, and thisyear the survey specifically focused on the impact of the Covid-19 pandemic and the national lockdown.

This year’s research was conducted online with just under 1 500 respondents from May 29 to June 23 – during lockdown level 3.

A key finding is that as many as 57% of those surveyed are earning less than they were at the end of February, while 40% of those currently employed only have enough funds to survive for a month – or less – should they lose their jobs.

As many as 66% of the respondents stated they were constantly worried about losing their job/income.

What households are doing to keep heads above wate
What households are doing to keep heads above water. Graphic: Theuns Kruger

Overall, satisfaction with the current financial situation is down from 6.3 last year to a mean score of 5.3 out of 10 this year.

Lynette Nicholson, head of research and insights at Old Mutual, says: “A very alarming consequence of the financial pressures South African households are experiencing is that just more than 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.”

The level of dependency has also grown. In 2015, those with other adult dependants (excluding spouse or partner) was 35%.

This year, it spiked to 52%.

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

Lower income earners are the worst hit by lockdown
Lower income earners are the worst hit by lockdown. Graphic: Theuns Kruger

Debt and loans are also a concerning sign of the financial pressure households are under: 43% are taking personal loans from financial institutions (up from 21% last year), 19% of respondents are taking loans from family or friends (up from 13%) and 12% are borrowing from microlenders (up from 5%).

“Another interesting finding relates to South Africa’s informal savings. Although membership of stokvels has declined from 44% to 34% this year, there are more people now contributing to grocery schemes (from 9% last year to 23% this year) and burial societies (from 23% to 38%),” adds Nicholson.

“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 wellbeing,” she says.

Key tips from Old Mutual's financial education head, John Manyike

  •  Always seek expert financial advice;

  • Remember that, during times like these, knowledge plays a crucial role in the financial decisions we make. Equip yourself with financial understanding to ensure you make the right decisions;

  • Look at your finances – particularly your expenses – carefully and plan properly for the future;

  • Consider starting a “side hustle” to supplement your income;

  • Find ways to downscale your lifestyle to free up additional cash;

  • Don’t borrow from your future and don’t be tempted to draw from your retirement savings;

  • Use credit responsibly;

  • If you have already consolidated your debts to ease the pressure, avoid further credit;

  • Avoid taking loans to buy things in bulk;

  • Be responsible and cautious about buying on credit to avoid debt spiralling out of control;

  • Be transparent with your family. Play open cards about the debts you have to service so you can manage expectations and help them adjust;

  • Do not be tempted to disinvest because of panic. Markets are generally volatile during uncertain times, but will self-correct over time;

  • If you resign from your job during this time, avoid the temptation to cash in your retirement fund;

  • Before you approach a credit provider or accept any offer of debt relief or a payment holiday, make sure you understand the terms and conditions of the agreement;

  • Build an emergency fund over time. Ideally, you need a safety net that’s the equivalent of six months of your salary; and

  • Include loyalty programmes in your emergency fund-building strategy.


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