South Africans running out of money

Many South African households have exhausted their savings and resorted to borrowing to make ends meet as they feel the pressure of the country’s high cost of living.

This was revealed at the Nedgroup Pre-elections Treasurers’ Roundtable on 24 April 2024, where Nedbank economist Isaac Matshego said high interest rates had hit the South African consumer.

The South African Reserve Bank started raising rates in November 2021 and has been in a hiking cycle since.

The repo rate and prime lending rate have reached decade-long highs of 8.25% and 11.75%, respectively.

However, inflation also remains relatively high, with the latest inflation reading showing CPI at 5.3% in March.

“Consumers now have exhausted their savings and are borrowing again, and at this level of interest rates, the consumer is just feeling the pressure,” Matshego said.

Household savings as a percentage of personal disposable income trended negative in 2023, as South African consumers bore the brunt of the country’s slow economic growth and high inflation and interest rates.

Matshego said this pressure could be seen in high debt defaults, which have been raised by high interest rates and subdued income growth.

He explained that this was worsened in the 2024 February Budget when the National Treasury did not adjust personal income tax brackets for inflation.

This led to a phenomenon known as “bracket creep”, where consumers pay more tax than the previous year despite being in the same tax bracket.

However, Matshego said consumers should experience some relief this year, as Nedbank believes interest rates have peaked.

He said South Africa is expected to see interest rate cuts from the third quarter of 2024, likely in September.

The graph below shows South Africa’s debt defaults, courtesy of Matshego.

Consumers feeling the pain

FinMark Trust’s annual FinScope Consumer South Africa for 2023 showed that the rising cost of living is significantly impacting South African households’ wallets. 

It found that food costs consume approximately one-third of South African residents’ income, and rising costs weigh heavily on consumers’ budgets. 

Living expenses, which include groceries, energy, transportation and communication, account for around 85% of monthly income. 

Specifically, groceries account for 30.4% of expenses, energy for 11.5%, transportation for 9.1%, communication for 8.8%, and routine household maintenance, rental, and rates for 8.5%.

“These rising costs affect not only the ability to invest in education and insurance but also contribute to the inability to repay debt,” the survey found.

According to the National Credit Regulator’s Credit Bureau Monitor for March 2023, 23% of consumers missed instalment payments.

“It is considered highly burdensome to allocate more than 10% of income to household energy expenses, including electricity,” said FinMark Trust senior data and analytics specialist Jabulani Khumalo. 

“The year 2024 may not alleviate the cost to consumers, as they have recently endured a staggering 12.74% increase in Eskom’s tariffs, with no indication of interest rates decreasing anytime soon.”

“Due to financial constraints, two out of every five individuals reported their homes being without electricity in 2023.”