These are the debts that South Africans are paying off first
South Africans have become more prudent in how and why they choose to use credit agreements, according to Robin Wagner, Senior Vice President of International Insurance at TransUnion.
Speaking at a recent insurance round-table, Wagner cited the most recent TransUnion CCI which showed a jump from 49% to 52% this past quarter.
The CCI (Consumer Credit Index) is a unique indicator of consumer credit health. It measures the ability of consumers to meet their credit obligations, given the constraints of their monthly household budget.
The Index is based on a 100-point scale. Any number above 50 indicates consumer credit health has improved over the past year; any number below, shows it has deteriorated.
According to Wagner one of the biggest reasons for such a large jump is because the default rate has dropped by 6% over the past year. In other words, more South Africans were servicing their debt more effectively.
“How people pay down on their facilities is incredibly important,” said Wagner.
“Credit cards are usually the first on the list, followed by vehicle asset, home loans and then various forms of ‘grudge’ purchases such as insurance.”
This begs the question: why have so many more South Africans begun making changes to their debt repayments?
“Speaking subjectively, its because consumers have learned to become more prudent with their purchasing decisions. In addition major financial institutions have tightened their lending belts (who they will lend money to and what it will be used for) and within the last 6 years South African consumers now have experience of living with debt.”
“The result is that we saw as drop from 58 million active credit accounts in 2015 to 54 million in 2017.”
A word of warning
While South Africa’s personal spending habits has shown positive signs, recent economic and political events will bring added pressure to the consumer, according to Kganya Kgare, a consumer economist at Stanlib.
“When looking at the data you will see that South African growth has traditionally always been linked to global growth,” he said.
“However within the last 3 years we have seen South Africa fall off. Things are also going to get worse from a business confidence point of view as our latest statistics point to close to 2009 recession numbers, and we haven’t even received the numbers post cabinet reshuffle and credit downgrades.”
While Kgare noted that South Africa was unlikely to move from a technical recession to an outright recession, the country’s positive growth was primarily linked to factors outside of control such as Agriculture.
Read: The big problem with South Africa’s ‘debt forgiveness’ plan
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