Nearly half of South African consumers (44%) say they will not be able to pay at least one of their current bills and loans in the next three months, according to research conducted by TransUnion in late May and early June.
According to the data, with the high inflation rates and forecast continued interest rate hikes on the horizon, it was found that the majority (52 percent) of households said they would cut back on their discretionary spending.
These cuts in discretionary spending came despite just under a third of respondents (31 percent) to TransUnion’s quarterly Consumer Pulse study 1 reporting their household income had improved in the last three months, lifting five percentage points from the prior quarter.
In all, 26 percent of respondents said their household income decreased in the last three months.
Lee Naik, the chief executive of TransUnion Africa, said the improvement in household income was largely due to South Africa’s unemployment statistics dropping from a record-high of 35.3 percent to 34.5 percent.
“At the start of Q2 (quarter two), the South African annual inflation rate was at 5.9 percent, consistent with levels observed in prior months and aligned with market forecasts. However, this is the 12th consecutive month where annual inflation has been at the higher end of the median of the South African Reserve Bank (SARB) target range of 3 to 6 percent at 6.5 percent.
For South African consumers, the combination of ongoing rate hikes means higher monthly repayments on their debt obligations, on top of sharply increased food and fuel prices,” Naik said.
The insights company said that while most consumers (93 percent) in the survey said they believed access to credit and lending products was important to achieve their financial goals, less than half (42 percent) reported they had sufficient access to credit.
In all, 40 percent of consumers were planning to apply for new or refinance existing credit. The firm said this aligned with the findings of TransUnion’s quarterly Industry Insights Report, which measures consumer credit trends found in TransUnion’s database.
That report found that credit card originations increased 27.6 percent in quarter one 2022 from the same period last year. Personal loan originations were up 8.5 percent year-on-year, although still lower than pre-pandemic levels.
In the Consumer Pulse study, more than half (51 percent) of consumers said they had considered applying for credit or refinance existing credit, but decided not to.
The reasons for abandoning their applications for credit were high costs (32 percent), an alternative funding source (27 percent), or a belief that their application would be rejected due to their income or employment status (25 percent).
To manage financial choices, the company said that most consumers said monitoring credit was at least moderately important (89 percent), with over six in ten (62 percent) saying they monitored their credit at least once a month. Most (53 percent) believed their credit scores would increase if businesses used alternative credit information in addition to standard metrics.
Meanwhile, life insurance company Metropolitan said the household debt-to-income ratio in South Africa was expected to reach 75 percent by the end of this year.
The insurer said this meant that for every R100 a South African had, R75 went towards paying off debt.
With the ever-increasing cost of living, paying off debt could put consumers under immense pressure and in need of proper debt management strategies to enable a culture of saving.
In managing debt, Metropolitan said that probably the most important one was to draw up a budget with all one’s income and expenses.
BUSINESS REPORT