Making ends meet is becoming increasingly tough for consumers caught between escalating debt and the rising costs of living, write Neesa Moodley and Maya Fisher-French
Engagement with our readers often tells us more about the state of household finances than official statistics convey.
We have been receiving letters from readers saying they cannot afford to meet their monthly municipality bills, and are being forced to sell their homes. Other readers are resigning from their jobs to access their pension money in the hope of settling debts they cannot repay.
This anecdotal evidence, together with findings from two consumer surveys released this week, paints a picture of an ever increasingly stressed out consumer.
According to the Consumer Credit Index released by credit bureau TransUnion earlier this week, South African consumers’ credit health has deteriorated over the past three years.
TransUnion chief executive Geoff Miller says as economic conditions continue to deteriorate, consumers are finding their ability to meet their financial commitments has diminished and they are increasingly relying on credit to make ends meet.
“We don’t believe the economy is going to turn around any time soon, and consumers need to be cognisant of this as they make financial decisions in the here and now,” says Miller.
According to him, although the recent decrease in the petrol price might bring a little relief, this is offset by the 0.25% repo rate increase in July.
“While it was by no means a large increase,
the change in the repo rate to 5.75% has had a negative effect on consumer debt affordability,
and the net result is that the petrol price decrease will not have a material effect on consumers’ budgets.”
The 2014 FinScope consumer survey, released this week, confirms that household finances have deteriorated over the past year. Nearly 50% of those interviewed said they had less money than three months ago, and a quarter are struggling to make ends meet. The number of people who said they have money available for saving fell from 28% last year to 24% this year.
All these figures are an increase on the data collected during the 2013 survey.
The FinScope survey has also painted a less than rosy picture of how consumer finances have grown over the past 10 years.
Although Census 2011 statistics show an increase in the average lifestyle of South Africans as more people move out of poverty, this has been driven mostly by social government grants and not by an increase in the number of people earning wages.
The number of people receiving social grants increased from 19% in the 2004 survey compared with 30% today.
But over the past 10 years, the number of people in full-time employment has remained static at 21%, and the mean personal income has only risen from R3?147 to R3?317 after being adjusted for inflation.
Of growing concern is that when compared with the survey 10 years ago, the number of women receiving some form of salary payment has decreased from 30% to 28%.
The survey also found that despite better living standards, people are not necessarily happier than they were in the past because there appears to be an expectation of continued improvement – and this is not necessarily happening.
Households are relying more heavily on credit to make ends meet, with 42% of people who borrow saying they do it to buy food, and 17% saying they do it in order to pay bills.
The Consumer Credit Index shows that, on average, households are currently using 50% of their credit limits, up from 40% in 2007; and the use of revolving credit, in particular, is rising at a rate of approximately 3.5% year on year.
Miller says this is predominantly being driven by the use of credit cards.
“While concerning, this rate of increase is still well below the levels of acute distress in 2008, when distressed borrowing was rising at a rate of approximately 10% year on year,” he says.
The number of people who are overindebted and falling behind on repayments rose from 4.7?million last year to 4.9?million this year.
One positive factor that emerged from recent National Credit Regulator reports is that there has been a drop in the extension of unsecured credit.
Miller attributes this to the recent fall of African Bank Investments Limited and increased caution from lenders.
STRATEGIES FOR SURVIVING
Don’t look to credit to solve your problems. Take on an extra job – we often focus on higher-paying jobs without realising how easy it is to earn extra cash by doing odd jobs. Start thinking out of the box. There might be items in your house you can turn into cash on sites like Gumtree.
Don’t be wasteful
Electricity costs will keep rising, so start focusing on ways to cut your electricity bill. Make sure you only switch on necessary lights and put your geyser on a timer.
Watch what you spend on entertainment – this is usually an area you can cut back on. Shop at second-hand stores, where you can get excellent quality goods for a fraction of the price.
If you receive a bonus or 13th cheque, settle one debt and then close that credit line. If you don’t have access to credit, it does not become an option.
If you know that you are not coping with your debts, take action – even if that means going into debt review. You have more chance of recovering financially if you take action rather than being forced into a situation by legal means.
Despite the standard of living improving for most South Africans, 50% of those surveyed by FinScope said they were not happier.
This is because we are always wanting more than we have. Be grateful for what you already have – you will be happier and will be less likely to spend more.