South African households are in trouble

 ·5 Apr 2023

Half of the South African households owe debt – and with the country’s economy dwindling further, it is vital to stay afloat, says Charnel Collins, the CEO of the National Debt Advisors (NDA).

“The increase in interest rates on an already indebted nation is devastating,” said Collins.

She added that the latest interest rate hike would impact the overall financial well-being of consumers and all types of debt – from credit card repayments to the repayment of a home loan.

On 30 March, the South African Reserve Bank (SARB) announced a surprising 50 basis point rate hike increasing the prime interest rate to 11.25%.

The hike marked the ninth consecutive increase since the start of the rate cycle in November 2021. Rates are currently at their highest point since the year of the global financial crisis.

Expanding on the severe consequences of the latest rate hike, Collins said: “In April 2022 consumers with an R1,500,000 bond over 25 years were paying R11,330 per month – no deposit given. As of April 2023, they can now expect to pay close to R3,644 more – bringing monthly instalments up to R14,974.”

The CEO said that, adding insult to injury, the country’s inflation rate recently rose to 7% for the first time in four months – forcing consumers to shell out more for an average basket of goods.

According to Collins, the growing debt servicing burden just to keep the lights on and food on the table is especially detrimental to the financial and emotional strain of families.

The latest General Households Survey from Statistics South Africa showed that 51% of South African parents had experienced financial strain affecting family life.

She said that understanding the difference between good and bad debt is fundamental to households.

With the introduction of easy-to-obtain credit cards and personal loans, credit has become increasingly accessible, said Collins.

“While credit can be a useful tool, not all debt is created equally. According to the latest Eighty20’s Credit Stress Report for Q4 2022, the current balance on all loans is up 3.8% quarter-on-quarter, with increases across all loan products.”

“Data from the report showed that the second largest percentage increase came from credit card accounts, up by 7.2%. “This is a clear indication that taking on too much high-interest debt can quickly become unmanageable, leading to a cycle of debt that can be difficult to break,” she added.

Collin’s views reflect a growing reality for households in South Africa, which have reported a slew of economic ills in recent months.

The latest Economic Outlook from financial services group PwC said that despite disruptions to local and global supply chains, consumers in the country continue to be hampered by rising prices for everyday goods, among other things.

South African respondents to the group’s latest Global Consumer Insights Survey Pulse (GCIS) found that supply chain disruptions had significantly affected the price of household goods, increased the length of queues in stores and led to some items being out of stock.

This has forced many to look for different ways to put food on the table, including turning to credit, or switching their shopping habits completely.

Eighty20’s Credit Stress Report for Q4 2022 showed that there is a growing appetite among consumers for credit. This is despite continued high inflation and rising interest rates. The group reported that there were over 800,000 new entrants into the credit market, the highest since the pandemic.

The most recent Nielsen Global Outlook report, meanwhile, found that consumers are taking up discounts at a record rate, chasing promotions, buying in bulk and taking advantage of loyalty schemes – all to reduce the final price tag of their shopping spree.

Read: 6 big changes coming to Home Affairs in South Africa

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