SA consumers have 24% less income and 25% more debt than in 2016

Consumer debt is 25% more than in 2016, with 24% less disposable income for consumers due to flat average net incomes, which means they have to supplement their disposable income with unsecured borrowing.

The effect of various lockdowns and payment holidays in 2020 has become clear in the latest statistics for the third quarter of 2021 in the DebtBusters’ Debt Index, that shows the situation for consumers struggling with debt is deteriorating, according to Benay Sager, head of DebtBusters.

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The extent of consumer debt

The index shows:

• Unsecured debt for the average consumer is 25% higher than 2016 levels and 59% for top earners
• Average unsecured loan size has grown by 51% in four years
• Secured loans have grown in size, but by a much smaller percentage (26%) compared to unsecured loans
• The number of loans has shrunk by 26%, indicating a smaller pool is getting unsecured loans
• More consumers (17%) asked about debt counselling compared to the same period last year
• Nominal incomes were at 2016 levels, but when cumulative inflation growth of 24% is factored in, real incomes shrank by 24% over five years
• Consumers consistently need to spend around 60% of their take home pay to service their debt
• The debt-to-income ratio for all income bands was higher in the third quarter compared to previous third quarters with 116% across all income bands and 145% for those taking home R20 000 or more
• The number of consumers successfully completing debt counselling increased sixfold over the last five years
• The nature of debt is mostly stable, except for financed vehicles which has increased in the last few years
• Banks make up two thirds of debt
• Total debt levels increased by 13% compared to 2016 which is lower than inflation and much lower than unsecured debt growth
• The average number of credit agreements a consumer has continues to decline
• Consumer age profiles indicate increasing financial stress in the 45+ age group with applicants increasing from 19% to 27% over the past five years

ALSO READ: Consumer income drops while unsecured debt spikes – index

Effect of pandemic on consumer credit

“South Africa may be over the worst of the pandemic for now but like lingering long Covid, consumers are still feeling the effects of consecutive lockdowns and the full impact of 2020 payment holidays which have now ended. Add to this a diminished ability to borrow and the picture looks even worse,” Sager says.

The latest Index shows that, compared to 2016, consumers who applied for debt counselling during the third quarter had zero nominal income growth and negative real income growth. Nominal incomes were the same as 2016 levels, but when the cumulative effect of inflation is considered, real income shrank by 24% over the past five years.

In addition, the higher debt-to-net-income ratio of 116% across all income bands is higher than during any comparable period since 2016, while levels of unsecured debt were on average 25% higher than in 2016.