These income levels in South Africa owe the most debt

 ·17 Aug 2022

Consumers in South Africa need to spend around 63% of their take-home pay to service their debt, data from debt counsellor DebtBusters shows.

Many consumers are seeking help proactively as consumers are feeling the impact of inflation, interest rate increases, and diminished ability to borrow. Inflation featured in the top three worries for consumers in the recent Money Stress Tracker survey and has been cited as one of the primary drivers for debt counselling applications by consumers, the group said.

In Q2 2022, there was increased demand from consumers for debt counselling, with inquiries up 17% compared to the same period last year.

For those taking home more than R20,000 per month the total debt to annual net income ratio is 147%, while consumers in this income bracket spend around 66% of their take-home pay to service their debt.

In the last six years, average net incomes were flat, meaning in real terms – when compared against inflation – most South Africans have 34% less purchasing power in 2022 compared to 2016, resulting in the need to supplement this income with unsecured borrowing.

On average, consumers have 22% more unsecured debt in 2022 compared to 2016, however unsecured debt levels are slightly lower than 2021 levels.

Total debt levels (which include both secured and unsecured debt) have increased by 18% compared to Q2 2016; this increase is lower than inflation and lower than unsecured debt growth, said DebtBusters.

Vehicle debt has increased in the last few years, indicating that more consumers with assets – vehicles in particular – are seeking financial assistance, the debt specialist said.

South Africa’s economy is characterized by low levels of economic growth, high levels of unemployment, inflation rates above the upper limit of the SA Reserve Bank’s inflation target (above 6%) and a cycle of increases to the repo rate – increasing the cost of credit, said Chris Blair, CEO at remuneration firm 21st Century.

The inflation rate for June 2022 is 7.4% up from 6.5% in May 2022.

The Consumer Price Index report, published by Stats SA in June 2022, showed that the lowest two expenditure deciles – the 20% of people who spend the least – faced the highest inflation rate with the lowest decile facing 9.1% and the second lowest decile facing 8.5%.

“This indicates that presently, the worst of the local inflation is being faced by the most marginalised groups,” said Blair.

This makes sense as the proportion spent on basic goods such as food, fuel, and transport is much larger within the spending basket of the lowest expenditure deciles. Presently, food inflation is up 9%, electricity and other household fuels is 14.5% and petrol is up 45.3%.

To the poorest consumers, this has a significant impact on their ability to meet their needs as their already stretched finances are now being asked to absorb the toughest of conditions faced by the SA economy from an inflationary perspective, said Blair.

Read: South Africa’s middle class is in big trouble

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