South Africans worse off today than in 2016

Debtbusters’ Q4 2024 Debt Index showed that South Africans are financially worse off today than in 2016, with 42% less purchasing power, higher debt, and increasing reliance on unsecured loans.

Benay Sager, executive head of DebtBusters, explained that, compared to 2016, when DebtBusters began collecting and analysing data, consumers who applied for debt counselling in Q4 2024 had 42% less purchasing power.

“Although nominal incomes were 2% higher than eight years ago when cumulative inflation of 44% is considered, in real terms, spending power is down 42%,” Sager said.

Consumers today also have a higher debt-service burden than they did in 2016.

“On average, before entering debt counselling, consumers spend 68% of their take-home pay to service debt. Those making R35,000 or more monthly need 74% of their income to repay debts.”

“The debt-to-income ratio for those earning R20,000 per month is 137% and 187% for people taking home R35,000 or more. For these income bands, the ratios are at the highest-ever levels.”

On top of this, 2024’s consumers also had unsustainably high levels of unsecured debt, Sager said.

“Unsecured debt is, on average, 29% higher than in 2016. For those taking home more than R35,000 per month, it is 60% higher.”

“This shows that in the absence of meaningful salary increases, consumers supplement their income with unsecured debt.”

Fortunately, Sager explained that South African consumers got some relief in the second half of 2024, with positive news about inflation, interest rates and load-shedding.

Additionally, access to retirement funds further buoyed consumer finances, with about two million consumers accessing retirement savings since September.

In September 2024, South Africa introduced the new two-pot retirement system, which allowed people to take out their retirement savings early.

Despite fears that people would use their early withdrawals irresponsibly, pension funds have found that most people have used them to address debt or navigate real financial stresses.

While experts still caution against taking out retirement savings early unless it is entirely unavoidable, those who did saw the benefit of having some extra liquidity.

And, at least on paper, that made South African households appear less strained in recent months.

“Against this backdrop, Debtbusters’ Q4 2024 Debt Index found that demand for online debt management was up 9% and debt counselling enquiries for the full year increased by 8% over the prior year,” Sager said.

He explained that 2024 was a year of two “chapters”.

• The first was full of financial anxiety: load shedding, high interest rates, high food inflation, and worries about the upcoming national election.
• The second ‘chapter’ was one of financial relief: no load shedding, lower food inflation, relief about the formation of a coalition government and being able to access retirement funds via a ‘two-pot’ system.

As a result of this positive second half, 2024 was a better year than 2023 for South African consumers, Sager said.

“The increasing use of online debt-management tools indicated consumers are being more proactive about debt before it gets out of control.”

“The data also points to more people considering debt counselling as an effective way to deal with debt in a high-interest environment.”

Under debt counselling, he explained that rates for unsecured debt can be renegotiated and often result in a reduction from 24,6% to around 2,5%.

“This allows consumers to pay back expensive debt faster. Interest on vehicle debt and balloon payments, which average 15,4% can be negotiated down and the period extended.”

The Debt Index also found Q4 2024 to be the second consecutive quarter where the median debt-to-annual-income ratio increased from all-time lows.

Currently, this figure is 113%, indicating that consumers are still experiencing the effects of interest rate increases that began in November 2021 and, despite some respite, remain elevated.

“Eighty-two per cent of those who applied for debt counselling during the quarter had a personal loan and 52% a one-month loan.”

This indicates that consumers continue to supplement their income with short-term loans and personal loans have become a lifeline for many people.”