Cost of living shock for South Africans
Since 2016, South Africans have faced a growing cost-of-living crisis, characterised by massive increases in expenses that far outstrip the meagre growth in salaries.
The latest insights from DebtBusters’ Q3 2024 Debt Index, presented by Executive Head Benay Sager, underscore the deep financial strain felt by South Africans.
Despite some recent economic improvements, the underlying financial pressures remain daunting for many households.
In Q3 2024, there was a slight rise in debt management demand, with debt counselling inquiries up by 6% and online debt management services seeing a 10% increase compared to the same quarter in 2023.
Encouragingly, some positive developments emerged during this period.
These included reduced inflationary pressures, lower petrol prices, the first interest rate cut in several years, the implementation of the two-pot retirement system, and a brief respite from load shedding under a new coalition government.
However, these changes, while welcome, have done little to address the fundamental imbalance between income growth and skyrocketing living costs.
The Debt Index paints a grim picture of this disparity.
Since 2016, electricity tariffs have surged by 135%, petrol prices have doubled, and the compounded impact of inflation has been 46%.
Meanwhile, nominal incomes have grown by a mere 2%, leaving South Africans with 44% less purchasing power in real terms.
This erosion of financial capacity means that consumers today feel significantly poorer than they did eight years ago despite ostensibly earning more on paper.
The high cost of living has pushed many into unsustainable debt.
According to DebtBusters, consumers seeking debt counselling in Q3 2024 needed a staggering 66% of their take-home pay to service debt, the highest level recorded since 2017.
Alarmingly, this burden is even more pronounced for high-income earners and the most vulnerable.
For those earning over R35,000 per month, 72% of income is allocated to debt repayments, while their total debt-to-annual-net-income ratio stands at 176%.
Lower-income earners, taking home R5,000 or less, allocate 75% of their earnings to debt—a stark indication of their precarious financial position.
Personal loans have become a lifeline for many South Africans, with 82% of those in debt counselling holding such loans and 53% relying on short-term payday loans.
For higher-income earners, unsecured debt levels are now 52% higher than in 2016.
While slightly above inflation growth, this trend highlights the absence of meaningful salary increases and the persistent need to supplement income with credit.
The financial challenges faced by South Africans have broader societal implications.
Political economist Duma Gqubule noted that “the mismatch between rising costs and stagnant incomes deepens inequality and perpetuates poverty.
“Addressing this requires not only economic reforms but also a commitment to living wages,” he emphasised.
The recent economic improvements offer a glimmer of hope, but they are not a panacea.
The slight dip in inflation and temporary cessation of load shedding provide short-term relief, but the structural issues of wage stagnation, exorbitant debt levels, and high borrowing costs remain unaddressed.
A long-term solution requires a multi-faceted approach, including policies that stimulate wage growth, regulate predatory lending practices, and foster financial literacy among consumers.
South Africans are navigating a perilous financial landscape, with many barely managing to keep afloat.
As Sager aptly notes, the continued reliance on unsecured credit is a symptom of deeper systemic issues.
Without meaningful interventions to bridge the gap between incomes and living costs, the cost-of-living crisis will persist, leaving millions vulnerable to financial distress.
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