South African consumers are struggling as spiralling food prices cut deeply into household budgets. File photo by Dwayne Senior/Bloomberg via Getty Images
South African consumers have 42% less spending power than they did nine years ago, because salary increases have failed to keep up with the rising cost of living.
This was among the findings of a report by the country’s largest debt management company, Debtbusters, for the fourth quarter of 2024, which said consumers are facing a rising debt service burden and spending 68% of their take-home pay on debt repayments. Those earning R35 000 or more a month used 74% of their income to repay debts.
It said consumers who applied for debt counselling with the company in the fourth quarter had 42% less purchasing power in real terms than they had in 2016. Although nominal incomes were 2% higher than eight years ago, cumulative inflation totalled 44%, the report showed.
DebtBusters executive head Benay Sager described 2024 as a year of “two chapters”. The first half of the year had been characterised by high interest rates, high food price inflation, load-shedding and pre-election jitters, but consumers got some relief during the second half with positive news about the government of national unity, lower inflation, the absence of power cuts and two interest rate cuts of 25 basis points each.
Sager said access to retirement funds through the new two-pot system that allows limited early withdrawals had also buoyed consumer finances, with about two million consumers accessing their retirement savings.
“As a result of this positive second half, 2024 was a better year than 2023 for South African consumers,” he said.
But consumers remained under financial stress and demand for online debt management rose 9% while debt counselling inquiries increased by 8% compared with 2023. Most consumers had more than one loan from different financial institutions and the average age of people seeking debt counselling was 41.
“The increasing use of online debt-management tools indicates consumers are being more proactive about debt before it gets out of control. The data also points to more people considering debt counselling as an effective way to deal with debt in a high-interest environment,” Sager said.
The report said the fourth quarter was the second consecutive quarter where the median debt-to-annual-income ratio increased from all-time lows to 113%.
This indicator was 137% for those earning R20 000 a month and 187% for people taking home R35 000 or more, the highest-ever debt to income-ratio recorded for these income bands.
This indicates that consumers are still experiencing the effects of interest rate increases that began in November 2021, which, despite some respite, remain elevated,
Sager said.
Unsecured debt was a prominent feature in consumers’ debt portfolios and remained “unsustainably high”, on average 29% higher than in 2016.
For those taking home more than R35 000 a month, it was 60% higher, showing that in the absence of any meaningful salary increases, consumers are supplementing their income with unsecured debt.
“Eighty-two percent of those who applied for debt counselling during the quarter had a personal loan and 52% a one-month loan. This indicates that consumers continue to supplement their income with short-term loans and personal loans have become a lifeline for many people,” Sager said.
Under debt counselling, interest rates for unsecured debt can be renegotiated, often resulting in reduction from 24.6% to 2.5%. This allows consumers to pay back expensive debt faster.
Interest on vehicle debt and balloon payments, which average 15.4% can be negotiated down and the period extended, Sager said.
He warned that younger consumers, especially those in their twenties, are falling into the debt trap when purchasing vehicles because they did not understand interest rates, and they have also signed up for balloon payments.
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