The report found that the majority of the credit-active consumers spend borrowings on financing necessities: 43% of the surveyed population spent the borrowed funds on food, 11% on clothing, and on bills and monthly fees, respectively.<\/p>\n
In essence, 95% of the surveyed low-income individuals engaged in debt financing to afford basic needs such as food, clothing, transport, and bills.<\/p>\n
“The fact that credit is used to cover basic consumptive expenditure or to cope with financial shocks, is indicative of the high levels of over-indebtedness of lower income segments in particular, and low levels of financial resilience,” Genesis Analytics said.<\/p>\n
As expected, this trend is dominant among low-income individuals (earning less than R1,500 per month), grant recipients (+\/- R1,500 per month), and individuals with informal jobs (more than R1,500, but less than R3,000).<\/p>\n
By comparison, borrowers in the high-income group acquire credit to finance the acquisition of assets such as motor vehicle(s) or to build, purchase or renovate a house; while only 5% of the low-income individuals could invest in the same way.<\/p>\n
The large number of people facing over-indebtedness is of concern for the FSCA, particularly because of the societal risk that arises when consumers are overburdened by debt in perpetuity, leading to disproportionate social and personal harm.<\/p>\n The regulator noted that there are currently two mechanisms in place that deal with over-indebtedness: the insolvency law, and debt review.<\/p>\n The data mirrors finding from financial services firm Sanlam in 2021 which showed that consumers are struggling to shake off the impact of the Covid-19 pandemic on their finances.<\/p>\n Sanlam<\/a> found that 56% of polled South Africans saw their savings decrease since the advent of Covid-19. The survey found that 59% of 1,200 respondents said they have been forced to change their spending habits.<\/p>\n More than half (54%) of respondents said they are not able to make their money stretch to month-end, while poor financial health is seen as a serious stressor for relationships and mental health.<\/p>\n Data from FNB prior to the start of the global Covid-19 pandemic showed that middle-income South Africans relied heavily on debt with some using as much as a quarter of their monthly income to pay interest on debt.<\/p>\n FNB said that its data showed that more than half of middle-income consumers spend their income in less than five days after receiving it<\/strong>. The lender categorises middle-income consumers as those who earn a gross monthly income of between R7,000 up to R60,000.<\/p>\n Data from Old Mutual, also published in 2021, showed how South Africans are struggling to cope financially.<\/p>\n The group’s savings and investment monitor was conducted through an online survey, with a minimum income threshold of R8,000 and above considered.<\/p>\n![\"\"](\"https:\/\/businesstech.co.za\/news\/wp-content\/uploads\/2022\/04\/Credit-spend.png\")
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