South African money crunch

Less than half of South Africa’s population experiences an increase in income yearly, meaning South Africans are getting poorer.

This was revealed in Sanlam’s 2024 Financial Confidence Index Report, which ‘takes South Africa’s temperature’ in terms of the nation’s shared financial confidence. 

This year’s report revealed a nation preoccupied with present stresses, with nearly half the population having a below average – or lower – Financial Confidence Index (FCI). 

South Africa’s overall FCI remained stable with an index score of 47 out of 100, with slight improvements in Financial self-determination and financial well-being. 

However, the survey also found that only 46% – less than half the population – of South Africans are experiencing annual earnings and net worth growth.

Sanlam chief marketing officer Mariska Oosthuizen said this has a material impact on people’s personal well-being and South Africa’s economic growth.”

“Just 43% of people had income-generating assets and investments, and only 44% had a personal budget,” she said.

The lack of income growth is particularly concerning in South Africa, where economic growth per capita is low, but inflation and interest rates are high.

This means South Africans are becoming poorer in real terms, as their income is not only stagnant but also loses value over time due to inflation.

The latest BankServ Africa Take Home Pay Index showed that the average nominal take-home pay slipped in June.

“At R15,492, the average nominal take-home pay for June was down from May but still 6% up on year-on-year levels,” said Shergeran Naidoo, BankservAfrica’s Head of Stakeholder Engagements. 

In real terms, salaries adjusted for inflation tracked lower monthly at R13,634 and only 0.7% up on year-ago levels.

However, there is some good news. When comparing the average nominal BankservAfrica Take-home Pay Index for the first half of 2024 to the corresponding period one year earlier, a 6.7% increase was revealed. 

A similar comparison in real terms showed a 1.3% increase.

“If this trend could be sustained throughout the year, 2024 will be the first year in which the increase in average nominal take-home pay beats inflation since 2020,” said independent economist Elize Kruger.

However, this does not change the fact that the average household budget in South Africa has been under immense pressure in the last 18  to 24 months.

This pressure is largely due to escalating inflation and a sharp upward trend in interest rates, coinciding with nominal wage increases not keeping up with average inflation. 

While the consumer inflation rate has moderated and positive trends have emerged on wages, interest rates are still at a 15-year high. 

“It is hoped that the SARB will cut interest rates at the Monetary Policy Committee meeting in September,” BankServ said.

In debt 

Another factor weighing heavily on South African households is the substantial amount of debt they take on to get by.

TransUnion’s Q1 2024 South Africa Industry Insights Report revealed that South African consumers’ desire to borrow money is on the rise.

It said this comes as many turn to credit to supplement their income and maintain their lifestyles despite an increasing cost of living.  

“Consumers’ credit appetite continued to grow despite the sustained high interest rate environment, as consumer confidence improved slightly during this quarter, along with lower inflation metrics in January and March,” TransUnion said. 

The first quarter of 2024 saw the strongest year-over-year growth in personal loans, with a 20% increase. 

“This was the third consecutive quarter in which personal loans growth outpaced other consumer credit products,” the organisation said.

“Over the same period, retail instalment loan originations increased by 10%, and the average new loan amount increased by 14.5%.”

The SARB’s Q1 Quarterly Bulletin further revealed that South Africans spend 9% of their disposable income on debt-servicing costs, while total household debt makes up 62% of total income. 

The Reserve Bank said household debt rose towards the end of 2023, in line with increased spending. 

This shows that South Africans are increasingly turning to debt and credit to fund their lifestyles as the cost of living continues to rise. 

However, there are some green shoots. Disposable income rose faster than debt in the last quarter of 2023, reducing total household debt as a share of disposable income to 62.3%. 

Debt-servicing costs paid by households remained unchanged at 9% of disposable income. Therefore, nearly R10 of every R100 earned in South Africa goes to servicing existing debt. 

The SARB said a significant share of the debt-servicing costs come from a sharp spike in household debt during the Covid-19 pandemic, with debt peaking at nearly three-quarters of income. 

Coupled with the rapid rise in interest rates since November 2021, South Africans are spending more of their income on debt-servicing costs than at any time in the last five years.