Saving an 'impossible task' as SA households struggle with unmanageable debt

play article
Subscribers can listen to this article
As SA observes the national savings month in July, consumers are preoccupied with debt that's getting out of hand.
As SA observes the national savings month in July, consumers are preoccupied with debt that's getting out of hand.
Getty Images
  • As SA observes the national savings month in July, consumers are preoccupied with debt that's getting out of hand.
  • Some people are spending 70% of their net income servicing debt, leaving no money for savings.
  • But without savings, they get deeper into debt when financial emergencies strike.

As financial institutions prepare their savings month messages about the need to put money aside, debt counselling firms say this is an impossible ask for many South Africans.  

Consumers experiencing financial hardships are turning to credit to make ends meet if they can get it.

Carla Oberholzer, a debt adviser at DebtSafe, said people were already struggling to save before the pandemic. But now, with many people displaced from their jobs and living expenses rising much faster than income, messages about tucking extra money away sound "beyond ridiculous" to those who are struggling.

"Since July is a reminder of national savings month, saving is, of course, a fundamental financial goal to have. But times have not been kind," said Oberholzer.

Benay Sager, head of DebtBusters, said many people want to save - but simply can't. They have taken significant salary cuts to keep their jobs because of the lockdowns, while real incomes were declining even before the pandemic.

He pointed out that real incomes declined by 17% over the past five years, and the latest consumer inflation numbers, which show that people are paying more for basic foods, will exacerbate the situation.

Last week TransUnion released its quarterly industry insights report. The report, which tracked consumer credit trends in the first quarter of 2021, showed that people have been using unsecured credit more to get by.

Banks' existing customers have been using their credit lines more, and outstanding balances increased across all consumer credit categories. On the other hand, new borrowers have been scrambling as some lenders have reduced their appetite for lending to people they don't know.

Oberholzer said in the wake of all this, consumers should focus their energy on managing their debt before worrying about growing their savings.

"Adding any money towards savings is an impossible task and an unreasonable expectation. I would rather focus some energy towards managing debt because once you clear your debts and work on your debt management instead, you can save money faster," she said.

A chicken-and-egg situation

While putting money aside appears impossible for most consumers, Sager pointed out that accepting that this is how things are is what creates a vicious cycle that gets people deeper in debt.

"Clearly, the situation is unsustainable. Lack of savings makes consumers vulnerable should they be faced with an unexpected expense, lose their income or are forced to stop working," he said.

Paul Nixon, head of behavioural finance at Momentum Investments, said even the most modest salary can build wealth. But one has to "create space for saving". And one way to do this is by sticking to the rule of thumb that people should spend no more than 50% of their income on contractual obligations like debt repayments.

However, DebtBusters' latest Debt Index report showed that consumers who applied for debt counselling in the first quarter of 2021 spent 62% of their monthly net income on average servicing debt. Those earning less than R5 000 a month spent 70% of their net income repaying debt.

So, since the ship has sailed on spending less than half of net income on debt for many people, should they accept being trapped in the debt cycle?

The debt counselling companies said restructuring one's debt obligations can help create the "space" for saving. But that process has its pros and cons, too, and there are fees involved.

We live in a world where facts and fiction get blurred
In times of uncertainty you need journalism you can trust. For only R75 per month, you have access to a world of in-depth analyses, investigative journalism, top opinions and a range of features. Journalism strengthens democracy. Invest in the future today.
Subscribe to News24
Rand - Dollar
Rand - Pound
Rand - Euro
Rand - Aus dollar
Rand - Yen
Brent Crude
Top 40
All Share
Resource 10
Industrial 25
Financial 15
All JSE data delayed by at least 15 minutes Iress logo
Company Snapshot