Here’s how many South Africans would be crushed by a R10,000 financial emergency

Just over half (52%) of South Africans say they are saving for an emergency, while only 19% would be able to survive for three months if they were to lose their income, according to a new survey by Budget Insurance.

The survey also found that if an unexpected emergency occurred – which warranted an amount of R10,000 – 26% of South Africans would need to borrow more money from friends or family, and 11% would take out a loan to cover the remaining balance.

A further 7% said they would cover the emergency using credit, said Budget Insurance’s, Susan Steward.

“Currently, the outlook in South Africa is gloomy, with rising unemployment and threats of increasing fuel prices,” said Steward.

“For consumers, emergency funds need to cover not only the potential loss of income but, at the same time, unexpected disasters such as a burst geyser, a car accident or even a sudden illness.”

Promisingly, the research did indicate a more pragmatic approach to savings as the majority of respondents claim their willingness to sacrifice a luxurious lifestyle to be able to save, whether for emergencies or future events such as retirement or education fees, said Steward.

“Also encouraging was to see that respondents aged 18-24 represent 86% of those who are currently putting money away on a regular basis,” she said.

Rising debt levels

According to an April 2019 report by FNB, South Africa’s middle-income consumers (customers who earn between R7,000 and R60,000 per month) spend an average of 25% of their take-home monthly income to pay interest accumulated on debt.

“Consumers who have not defaulted on a credit repayment in the last 18 months show better money management practices in general,” said Raj Makanjee, FNB Retail chief executive.

“These consumers are typically saving more compared to those who are in arrears and hold more secured credit, such as a home loan or vehicle finance as opposed to unsecured credit.”

By comparison, the reliance on debt is higher among consumers who have defaulted on three or more credit obligations in the last 18 months, with nearly 80% of monthly interest paid going towards servicing unsecured credit.

Consumers are also taking on expensive forms of credit, from multiple providers and potentially at maximum interest rates.

“Access to credit remains a vital asset for a consumer and has been a gateway to financial inclusion for most people. Unsecured credit can be an important buffer when household budgets are not sufficient to cover unforeseen expenses,” said Makanjee.

Economy

In terms of economic data, South Africa’s 2019 film has begun in much the same vein as 2018, and could easily be classified within the ‘horror’ genre given heightened fears that South Africa could once again enter a technical recession in the first half of the year.

This is according to Maarten Ackerman, chief economist and advisory partner at Citadel, citing the latest figures from Statistics South Africa which showed that the economy shrank by 3.2% in the first quarter of 2019.

“This is not a good start to the year for Ramaphosa’s administration, which continues to struggle with numerous legacy issues that have resulted from years of poor economic management and graft,” he said.

“As long as economic growth remains at these kinds of mediocre levels, government is not going to gain any real traction in resolving key challenges of inequality and unemployment, and specifically youth unemployment.”


Read: How much you can save by paying just R600 extra into your home loan each month

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Here’s how many South Africans would be crushed by a R10,000 financial emergency