South African consumers under immense pressure

The 2023 Old Mutual Savings and Investment Monitor (OMSIM) revealed South African consumers’ finances are facing immense pressure from inflation and high interest rates, which is reflected in the rising use of credit.

While the Covid-19 pandemic revealed that very few South Africans had savings for financial emergencies, the 2023 OMSIM shows that the number of people saving for the unexpected has remained static.

This is as consumers battle to make ends meet in a high inflation environment with rising costs.

Old Mutual head of financial education John Manyike said that, in 2020, only 27% of respondents had a savings buffer to sustain themselves for more than three months. 

As the impact of the pandemic lessened, up to 39% of OMSIM respondents reported in 2022 that they were saving for a ‘rainy day’. This rate has remained unchanged. 

Currently, 30% have savings to sustain themselves for only a month or less.

“OMSIM respondents are still saving for emergencies as a personal priority, but many struggle to make progress in building their savings,” said Manyike. 

“Women and lower-income earners are least likely to have a savings buffer to last them more than three months.”

While emergency fund levels have stagnated, people have also resorted to relying on credit to make ends meet. 

The 2023 OMSIM showed that the use of credit and store cards has increased. 

At least 55% of those surveyed have loans from a bank, friends and family, employers, financial service providers or microlenders.

Since 2020, the research shows that:

• Bank credit card use has increased from 63% to 73% – up from 71% in 2022.
• The use of store credit cards and shop accounts changed from 58% to 61% – up from 57% in 2022.
• Car finance has increased from 34% to 41% – up from 39% in 2022.
• Revolving credit or overdrafts have climbed from 25% to 28% – stagnant from 28% in 2022.

To manage debt, one in four OMSIM respondents report having approached creditors to try and reschedule payments.

At least 12% have taken out loans to consolidate their debt, while 11% have applied for formal debt review and counselling.

“Understandably, in these tough times, people do what they must to survive. But borrowing more has consequences,” warned Manyike.

“With rising inflation, the Reserve Bank has increased interest rates to cool spending. These increases mean that credit costs on cards and loans are rising, and more money is flowing out of household budgets to meet these costs.”

However, some good news is that banks reported increased use of savings accounts and other investment products. 

Stokvels have been the biggest driver of the country’s savings culture. In 2017, 32% of OMSIM respondents belonged to more than one stokvel, which has risen to 61%. However, tight budgets have also impacted these informal savings vehicles.

“Attention must also be paid to building long-term savings, assets, and personal legacies. Although respondents listed building retirement funds as a priority, only 30% of those who left or changed jobs in the past 24 months preserved all their retirement savings,” he said.

“Most concerning is that 30% cashed out all their pension fund provisions.”