Consumers back to old ways as debt levels rise

Interest rates and inflation take their toll and drive up financial stress and debt levels. Photo:Martin Meissner, File

Interest rates and inflation take their toll and drive up financial stress and debt levels. Photo:Martin Meissner, File

Published Jul 28, 2023


Money lessons that South Africans were forced to learn during the Covid-19 pandemic are quickly being forgotten as high interest rates and inflation take their toll and drive up their financial stress and debt levels.

Two surveys released recently, Old Mutual’s 2023 Savings and Investment Monitor and DebtBusters’ second annual Money Stress Tracker, show that high numbers of consumers are experiencing financial stress and they have rising, unsustainable levels of debt in proportion to household income.

DebtBusters survey

The DebtBusters survey polled users of its online platform who are not in debt counselling – 35 000 subscribers participated this year. More than three out of four respondents (78%, up from 70% last year) said they felt stressed financially. The stress was more prevalent among women than men, and it was affecting their home lives, their work and their health.

Debt was a big concern: 44% of respondents said they were struggling to pay off debt. This ties in with another top concern, the high interest rates, which was a bigger concern than inflation and indicates just how severely the SA Reserve Bank’s aggressive interest rate hikes over the past year and a half have affected consumers.

Most alarming is the proportion of respondents with unsustainably high debt levels. Overall, 70% of respondents spent more than 30% of after-tax income on debt repayments. Those in the highest two income bands (those taking home more than R20 000 per month) had the most debt repayment pressure – 62% were using more than 40% of their income to service debts and 45% were using more than half of their income for this purpose.

“We advise consumers not to use more than 30% of their take-home pay on debt repayments. More than 40% is simply too much, especially in a high-interest, high-inflation environment,” says Benay Sager, the head of DebtBusters.

The survey also showed that younger people with lower incomes feel the most anxious about money, although stress levels in respondents aged between 45 and 54 showed a 23% increase compared with 2022.

In attempting to relieve their money troubles, 44% said they were trying to cut back on spending, and 27% said they were sticking to a budget. More than a third (38%) said they were looking for a better job or higher pay. However, only 12% of older respondents (55 and over) said they were looking for a better job or higher pay, probably resigning themselves to the fact that they were unlikely to bring in more income.

Old Mutual Survey

The annual Old Mutual Savings and Investment Monitor looks at consumer spending and saving. This year, between April 5 and May 3, the study surveyed more than 1 500 working South Africans earning more than R8 000 a month who broadly represented South Africa’s working population demographics. It too found worrying increases in the use of credit, although, contrary to the DebtBusters survey, found that, while high, financial stress among consumers had eased slightly since last year.

Since 2020 the research shows that:

  • Bank credit card use has increased from 63% to 73% of respondents (edging up from 71% in 2022).
  • The use of store credit cards and shop accounts has risen from 58% to 61% (up from 57% in 2022).
  • Car finance has increased from 34% to 41% (up from 39% in 2022).
  • Revolving credit or overdrafts have increased from 25% to 28% (28% in 2022).

Worryingly, many people are taking loans to service debt, which exacerbates their problems. More than a third (35%) of respondents who took out credit said they were using it for this purpose, while a similar percentage (34%) said they were using the loan “to make ends meet”.

To manage debt, one in four respondents said they had approached creditors to try to reschedule payments. Around 12% had taken out loans to consolidate their debt, and 11% had applied for formal debt review and counselling.

“Understandably, in these tough times, people are doing what they must to survive. But borrowing more has consequences. With rising inflation, the Reserve Bank has increased interest rates to cool spending. These increases mean that credit costs on cards and loans are rising, and more money is flowing out of household budgets to meet these costs,” says John Manyike, the head of financial education at Old Mutual.

“The lesson is that credit is costly. To avoid the cost curve and preserve income, we should be consolidating spending, reducing debt, and settling and closing the accounts that attract high interest. Over time, this will increase available personal income.”

* Hesse is the former editor of Personal Finance