Clothing accounts, new expenses drive SA youth’s entry into credit market

South Africa had a more than 8% increase in consumers who entered the credit market for the first time in 2022, with most opening retail clothing accounts and funding new expenses.

In 2022, the number of new-to-credit consumers (NTCs) rose to 810 000, compared to nearly 750 000 in 2021, according to a TransUnion survey that tracks the behaviour of consumers who are new to credit.

Of these, 58% opened a clothing account while 13% opted for a non-bank personal loan.

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The report’s findings stem from data and insights from consumers across various countries, including South Africa, Brazil, Canada, Colombia, the Dominican Republic, Hong Kong, India, the Philippines, and the US.

It was found that in South Africa, about 45% of NTC consumers opened their first traditional credit product because they were driven by new expenses.

“Most South African consumers reported that they opened their first credit product because they had a new expense, followed closely by having started living on their own,” says TransUnion.

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Store accounts

The most common credit line among such consumers, largely comprising Gen Zers (those born in 1995 or later) was a clothing account, which most applied for as a means to help them learn about how credit works and how to manage payment obligations.

“In South Africa where the most common first product was a clothing account, this same product type was also the most common subsequent product opened,” TransUnion notes in the report.

“It makes logical sense that subsequently opened products are of the same type because these consumers have greater familiarity and comfort with these products and can continue their credit journeys in a more informed way.”

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Even after their first exposure to credit, some consumers remain credit-shy, with 47% in South Africa listing avoiding going into more debt as a primary reason they might not have much credit, and 28% rejecting credit offered to them – largely because of high-interest rates.

The rejection rates are much like those in other regions such as the US, Canada, India and Brazil as high-interest rate environments continue to prevail.

Stubbornly high inflation has spurred an aggressive fight by central banks across the globe. They have been on an interest rate-raising cycle for longer than initially expected.

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While reining in inflation is necessary, it has made the cost of borrowing capital expensive and unaffordable.

The report also found that on average, about six of every 10 NTC consumers – including those in SA – expect their need for credit to heighten over the next three to five years.

This article originally appeared on Moneyweb and was republished with permission.
Read the original article here.