South African consumers’ debt situation is getting worse with the average debt-to-income ratio at its highest level ever, data from debt counsellor DebtBusters shows.
The group’s second-quarter enquiries show that debt counselling increased by 18% compared to a year ago.
Benay Sager, head of DebtBusters, attributes this to the after-effects of the nationwide lockdown and a narrowing of consumers’ ability to borrow.
Debt levels have increased substantially and the number of open accounts has decreased for consumers applying for debt counselling, both of which indicate that consumers are seeking help sooner, he said.
The pool of consumer borrowing has also shrunk, as supported by National Credit Regulator data, which indicates that the average unsecured loan size has increased by 46%. The number of loans has decreased by 31% over the last four years.
Middle-class the hardest hit
While the lockdown has impacted all income groups, DebtBusters’ data shows that South Africa’s middle-class have been some of the hardest hit. For those taking home more than R20,000 per month, the total debt to annual net income ratio is 152%.
Looking at the monthly data, those taking home over R20,000 per month need to spend 60% of their monthly net income on repaying debt, the group’s Q2 2021 Debt Index shows.
While debt exposure worsened for all income groups, the worst increases are those taking home R10,000 or more. Their debt to income ratio is 127% or more, the highest DebstBusters has ever recorded.
Less than a third of middle-class South Africans (30%) now say that they are positive about the future of South Africa, while 27% say that they are likely to emigrate within the next five years.
These are some of the major findings in the latest BrandMapp survey – a dataset uses a mega-sample of more than 30,000 South African respondents to profile the 12 million adults who live in mid-to top-income households earning more than R10,000 per month.
While people should understand the findings in the context of the Covid-19 pandemic, it is the latest dataset that points to a shrinking middle-class in South Africa as a stagnating economy and multiple lockdowns take their toll.
Data published at the end of 2020 by the University of Cape Town Liberty Institute shows that South Africa’s shrinking middle-class has been years in the making, declining from 6.1 million to 2.7 million individuals between 2017 and June 2020, translating to a 55.73% reduction.
On the other end of the spectrum, the number of ultra-poor individuals earning below minimum wage increased by 6.6 million individuals (54%).
Financial services company Transaction Capital said that the impact of various lockdowns could wipe out as much as a third of South Africa’s middle-class due to the various lockdowns.
Citing credit statistics, wage data and unemployment figures, the group said that overdue debt balances continue to increase, with a R33 billion increase seen in 2020 alone. It said that around 38% of loans are not in good standing.
This is combined with the highest unemployment rate in 12 years at 32.5%, deteriorating monthly income, and below-inflation increase. As such, more than a third (34%) of households in South Africa are forecast to fall out of the middle-class, it said.