Retailers closing the taps on young South Africans
Young South Africans have faced increased challenges in accessing retail credit since the Covid pandemic.
Although down as a result of this, defaults still remain high in this demographic, highlighting the need for greater financial literacy and responsible credit options.
This is according to Experian’s Consumer Default Index (CDIx) for Q1 2024, which revealed “a complex picture for young South Africans, highlighting the need for both increased access to responsible credit and enhanced financial literacy.”
The index tracks default rates among South African consumers for various loans including home, vehicle, personal, credit card, and retail accounts.
The Q1 2024 index showed that young people account for 16.4% of credit-active South Africans, with a bias (over 80%) towards retail credit.
Of this, the default index of young people dropped significantly from 21.9 in March 2023 to 16.8 in March 2024 – still remaining the highest among CDI groups.
“However, this positive trend doesn’t necessarily mean their finances have drastically improved [but] rather a case of them finding it harder to access new loans than before the pandemic,” said Experian.
Experian said that this is because the supply of credit for this category has not returned to pre-pandemic levels.
“We have… seen a slowdown in credit extension to these young and credit inexperienced consumers so that while fewer defaults are good, limited access to credit can hinder their financial progress,” said Jaco van Jaarsveldt, Experian’s Head of Commercial Strategy and Innovation.
“This highlights the need for increased financial literacy and responsible credit options for young South Africans,” he added.
The company said that increased financial literacy is critical as by understanding their credit reports and scores, “young South Africans can take proactive steps to improve their creditworthiness, access responsible credit options, and ultimately unlock their full financial potential.”
Young credit leaning towards retail
Youth spending patterns reveal a trend towards a high dependency on retail and clothing store credit, with over 80% of youth credit tied in with this sector.
Van Jaarsveldt told Newzroom Afrika that this is unsurprising as historically, credit participants would generally have started their credit journey with a small retail loan.
According to the report, four out of ten people start their credit journey with a retail store card. and of those, 80% went on to banking and secure lending products.
The Experian expert said that this is an indicator that “the small loan trains and teaches the consumer and specifically the youth that gains access to these type of retail loans to manage credit effectively.”
“However, post-Covid stopped lending so we’re now caught in that conundrum where there’s less supply than demand which forces us to look at things very very differently going forward,” he added.
The company’s analysis has seen that retailers are granting roughly 40% lower volumes of credit pushed into the market, specifically targeting first time credit entrants.
“The retailers were by far the greatest provider of credit to first time credit applicants and they [are now] operating at between 30 and 40% less credit into the market,” said van Jaarsveldt.
This “has resulted in new credit flow from these performing retail accounts into banking sectors dropping off and the banks now overextending existing customers credit,” he added.
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