South Africa’s middle class is in big trouble

The latest debt index from DebtBusters shows that South African consumers are falling further into financial trouble as people turn to unsecured credit to supplement their paycheques.

The group’s third-quarter enquiries show that debt counselling increased by 17% compared to a year ago.

Many consumers are now proactively seeking help as they feel the impact of the end of 2020 payment holidays, said Benay Sager, head of DebtBusters. He added that the after-effects of several nationwide lockdowns and diminished ability to borrow are also being felt.

“It is clear the debt situation of South African consumers has further deteriorated recently. In the absence of a meaningful increase in real income growth, South African consumers continue to supplement their income with more unsecured credit.

“Average loan sizes have increased by over 50% in a few years, and the number of debt obligations has decreased by 19% over the same period – both indicating that consumers are seeking help sooner.”

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 now 145%. By comparison, the average debt-to-net-income ratio is 116% across all income bands.

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 Q3 2021 Debt Index shows.

While debt exposure worsened for all income groups, the worst increases were seen among those taking home R10,000 or more. Their debt to income ratio is 121% or more, the highest Debtbusters have ever recorded for Q3 consumers.

The report also shows that salaries have effectively remained flat over the last five years across all income bands, meaning all South Africans are poorer, as inflation reached 24% over the same period.

Sager said loan sizes have increased by 50% over the past few years, proving that people need access to more money due to their income not growing. The number of debt obligations has declined by 19%, which points to consumers seeking help sooner.

On a positive note, the number of people who have completed debt counselling has increased sixfold over the past five years, he said. Consumers who received their clearance certificates in Q3 2021 paid back R300 million worth of debt while under debt counselling.

During the quarter, 57% of new applicants were men, a sustained increase. Sager said this is a welcome development as South African men used to be reluctant to seek help with their finances, with the majority typically preferring to struggle alone.

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South Africa’s middle class is in big trouble