- Stagnant income coupled with rising inflation has left most South Africans with 34% less purchasing power compared to 2016.
- This has led more South Africans to take on unsecured debt, adding to a fierce downward spiral as interest rates rise.
- This debt-laden economic pressure is most noticeable among South Africa’s middle class, according to DebtBusters.
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Most South Africans have 34% less purchasing power in 2022 compared to 2016 due to stagnant incomes and cumulative growth in inflation, according to the latest debt index.
South Africans, especially the middle class, are suffering from stagnant incomes, which are unable to keep up with rising inflation and rising interest rates following the pandemic-induced lull. Annual consumer inflation hit 7.4% in June, reaching its highest level in 13 years, while interest rates recently increased by 75 basis points, exceeding the Bank’s previous target reserve.
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The hikes, amid fears of a global recession, have pushed up the price of basic necessities, such as grocery baskets, and increased monthly payments on mortgages and loans.
This has led to a growing economic spiral, in which more and more consumers are relying on unsecured credit to make up for their income shortfall, according to DebtBusters. This debt exposure to net income ratio, among consumers who sign up for DebtBusters in the second quarter of 2022, is most severe among those earning more than R20,000 per month, considered the backbone of the South African middle class.
For those earning more than R20,000 per month, the ratio of total debt to annual net income is 147%. For context, consumers have to spend about 63% of their take-home pay to pay off their debt before coming to see a doctor. Requests for debt advice increased by 17% in the second quarter of 2022, compared to the same period last year.
“Over the past six years, average net incomes have remained stable, i.e. in real terms [when compared against inflation]most South Africans have 34% less purchasing power in 2022 compared to 2016, necessitating supplementing that income with unsecured borrowing,” the latest Debt Index report noted. DebtBusters published on Wednesday.
“On average, consumers have 22% more unsecured debt in 2022 compared to 2016, but unsecured debt levels are slightly lower than 2021 levels.”
Although the number of unsecured loans issued has declined over the past four years, the average loan size has jumped 28%.
While the nature of debt in South Africa has remained relatively stable across most categories, DebtBusters reports that financed vehicles accounted for a quarter of debt in 2022, while in 2016 such assets accounted for a fifth of all debt. debt.
Unsecured debt – including personal loans and credit cards – accounts for 46% of overall debt associated with consumers who signed up for debt counseling in the second quarter of 2022, while home loans accounted for 30 %.