South African consumers’ debt situation is getting worse

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South Africa’s middle class is in jeopardy. South African consumers’ debt situation is getting worse with the average debt-to-income ratio at its highest level ever, data from debt counselor DebtBusters shows. The group’s second-quarter inquiries show that debt counseling increased by 18% compared to a year ago.

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DebtBusters CEO Benay Sager attributes this to the aftereffects of the countrywide lockout and a reduction in customers’ capacity to borrow. Debt levels have grown significantly, but the number of open accounts has dropped for customers seeking debt counseling, indicating that consumers are seeking help sooner, he added.

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The pool of consumer borrowing has also reduced, according to statistics from the National Credit Regulator, which shows that the average unsecured loan size has grown by 46%. Over the previous four years, the number of loans has fallen by 31%.

Debt hit Middle-class the hard

While the lockout has affected people at all income levels, DebtBusters’ research reveals that the middle class in South Africa has been struck the most. The overall debt to yearly net income ratio for people earning more than R20,000 per month is 152 percent. Looking at the monthly data, those taking home over R20,000 per month need to spend 60% of their monthly net income on repaying debt, the group’s Q2 2021 Debt Index shows.

Less than a third of middle-class South Africans (30%) now say that they are positive about the future of South Africa, while 27% say that they are likely to emigrate within the next five years.

These are some of the major findings in the latest BrandMapp survey – a dataset uses a mega-sample of more than 30,000 South African respondents to profile the 12 million adults who live in mid-to top-income households earning more than R10,000 per month.

While people should understand the findings in the context of the Covid-19 pandemic, it is the latest dataset that points to a shrinking middle-class in South Africa as a stagnating economy and multiple lockdowns take their toll.

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According to data provided by the University of Cape Town Liberty Institute towards the end of 2020, South Africa’s diminishing middle-class has been years in the making, dropping from 6.1 million to 2.7 million persons between 2017 and June 2020, a 55.73 percent decrease.
On the opposite end of the scale, the number of ultra-poor people earning less than the minimum wage grew by 6.6 million people.

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According to financial services firm Transaction Capital, the impact of different lockdowns may wipe out up to a third of South Africa’s middle class.

Citing credit statistics, wage data, and unemployment figures, the group said that overdue debt balances continue to increase, with an R33 billion increase seen in 2020 alone. It said that around 38% of loans are not in good standing.

This is combined with the highest unemployment rate in 12 years at 32.5%, deteriorating monthly income, and below-inflation increase. As such, more than a third (34%) of households in South Africa are forecast to fall out of the middle-class, it said.

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