South Africa’s middle class is spending money they do not have, turning to credit to fund their lifestyles while increasingly defaulting on their loans.<\/p>\n
This tells a very different story of consumer financial health than what retail sales figures are signalling.<\/p>\n
Recent data from Eighty20’s Credit Stress Report for Q4 2022 showed that while retail figures indicate that the storm may have lifted for some consumers, there is a growing appetite among consumers for credit. This is despite continued high inflation and rising interest rates.<\/p>\n
This may indicate that South Africans are turning to retail therapy while already being financially stressed<\/strong>, the group said.<\/strong><\/p>\n Eighty20 reported that in the final quarter of 2022, there were over 800,000 new entrants into the credit market, the highest since the pandemic.<\/p>\n Despite this, retail sale\u00a0activity showed surprising resilience in the fourth quarter. The largest contribution towards this increase came from retailers in textiles, clothing, footwear and leather goods.<\/p>\n Eighty20, a data analytics firm, combines credit bureau data with external data sets to provide a thorough overview of the financial status of South African adults.<\/p>\n Using statistical methods, the company segments consumers based on income and assets, creating four categories: middle-class workers, the mass credit market, “heavy hitters,” and comfortable retirees.<\/p>\n The data shows that middle-class workers appear to be turning to\u00a0credit card debt to help them fund their lifestyles.<\/strong><\/p>\n Another major headache for the category of consumers is that they are struggling to meet growing instalments on big loans such as vehicle asset financing and home loans – as a direct result of rising interest rates.<\/p>\n Middle class refers to those with an average monthly income of roughly R15,000.<\/p>\n Eighty20 noted that the middle class is still not as reliant on credit as the mass market group, which earns between R3,000 and R8,000 a month.<\/p>\n For middle-class South Africans, total credit card debt is up 10% over the year, with average credit card loan balances up 12% to R31,000.<\/p>\n Although the proportion of credit card loan value newly in default has increased by nearly 17%, the real concern is how this segment is starting to struggle to meet the growing instalments on VAF and home loans due to interest rate hikes.<\/p>\n Despite almost no growth in Vehicle and Asset Finance (VAF) and home loan balances, the fourth quarter saw high year-on-year increases in the rates of new defaults (RND) for these loan types – 30% and 18%, respectively, the group said.<\/p>\n “The change in RND is the percentage change in the current quarter’s RND relative to the RND in the same quarter the previous year,” said Eighty20.<\/p>\n “The total average instalment-to-income ratio for the middle class has increased by 7.4% over the last year and is now sitting at 69.4% – meaning more than two-thirds of the average middle-class salary goes to servicing debt<\/strong>,” said Eighty20.<\/p>\n Andrew Fulton, the director of Eighty20, said the credit increase came with a surging number of loans, notably credit care, VAF and home plans in default.<\/p>\n “These new entrants took out R9.3 billion in new loan value, the highest in over two years, and up nearly 10% on last year. There has also been a significant surge in credit card balances, with total loan balances up R25 billion (12%) year-on-year.”<\/p>\n “This brings the total credit active population to 18.7 million with total loan balances of R2.3 trillion,” said Eighty20.<\/p>\n
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