Rising cost of living leaves 38% of SA consumers too broke to pay their bills

38% of South African consumers are unable to pay their bills although they are spending less as they battle to pay their debts due to economic pressures, stagnant household incomes, and increasing inflation.

Two out of three (67%) consumers surveyed in early November indicated they reduced discretionary spending, such as eating out, travel and entertainment over the past three months, while 37% said their priority is to pay off their debt faster as interest rates continue to increase, according to the TransUnion’s Q4 Consumer Pulse Study.

The study shows that household incomes remained stagnant, with the percentage of consumers reporting an increase in household income (36%) unchanged from the previous quarter, while the number of households reporting a decrease in income (23%) increased by four percentage points, with job losses (23%) and reduction in salary and wages (20%) as primary factors.

This means that people are not able to meet the increasing cost of living as they sink deeper into debt. Some borrow more to afford basic items such as food and rent as inflation and interest rates keep rising.

“A continued high inflationary environment, coupled with more anticipated interest rate hikes is likely to tip more consumers into default, with severe repercussions for the local retail sector,” Weihan Sun, director of research and consulting at TransUnion Africa, says.

This is worrying as a declining retail sector will shed jobs in a time when unemployment is already sky-high.

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Inflation hammers consumers

Inflation climbed from 5.7% in January 2022 to 7.6% in October, peaking at 7.8% (a 13-year high) in July. Non-durable goods price inflation accelerated from 9.8% to 14.4% in the second quarter, with sharp fuel and food price increases primarily contributing to consumer goods inflation.

By the beginning of November, the price of diesel (R25.49) was 48% higher than 12 months before (R17.19) and the price of petrol was 17% higher. Meat prices increased by 9.4% year-on-year, bread and cereals by 13.7% and oils and fats by 36.2%.

“We see clear signs of financial stress emerging and we expect to see further cutbacks in spending across all categories. These sentiments will have significant implications for the South African retail sector, which was already feeling the strain at the end of the third quarter, declining by 1.9% in sales volume.”

Retailers hoped for a resurgence in consumer spending during the festive season, but with the cost of goods increased dramatically, affordability is top of mind for consumers. However, retail sales did increase in November by 1.1% compared to October, as consumers mad ethe most of Black Friday deals.

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Signs of financial distress among consumers

Sun says signs of distress were particularly evident among Gen X consumers born between 1965 and 1979.

“Despite improvements in credit delinquency rates in the third quarter, one in three Gen Xers (33%) expected to be unable to repay their current debts in the fourth quarter and more than half (62%) reported an inability to pay current debts fully, while 41% cannot fully pay their debts plan on paying partial amounts.”

The study also showed that approximately 45% of consumers expected to shop less, while 58% expected to cut back on discretionary spending and 46% expected a decrease in large purchases, such as appliances and cars.

The importance of tackling outstanding debt was evident across all age groups, Sun says.

“Paying down debt faster remained a priority for more than a third (37%) and a third of respondents (34%) said they are saving more in emergency funds in preparation for unforeseen payment shocks, an increase of four percentage points from the year before.”

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Increasing interest rates also affect consumers

The most recent interest rate increase, the cycle’s eighth increase, reflects a total increase of 350 basis points since November 2021. Every hike in interest rates mean that consumers pay more for the credit they already have, as well as new credit.

“If interest rate hikes continue, consumers may feel added the pressure on their wallets. The significant increase in monthly repayment values on home loans and vehicle finance facilities will likely inhibit consumers’ abilities to service other forms of debt, as they often prioritise secured lending products.”

Most of the participants (92%) said they believe access to credit is essential, but only 42% feel they have enough access and 32% said they do not. Nearly all (95%) Gen Z consumers, born between 1995 and 2004 consider access to credit important, but only 62% believed they needed more access. Gen Z (42%) and 40% of Millennials, born between 1980 and 1994 shows the most significant demand for new credit.

Sun says as digital platforms continue to evolve, online transactions have become the norm. This was also evident in the study, with nearly two thirds (64%) saying they conduct at least a quarter (25%) of their transactions online. Only Baby Boomers, born between 1944 and 1964, conduct less than 60% of their transactions online.

Consumers also seem to be more interested in reviewing their own credit behaviour, with most of the participants agreeing that monitoring their credit reports is very (31%) or extremely important (36%). Two in three (67%) check their credit reports at least every quarter and over half (54%) believe their credit scores would change if alternative data were included in a credit report.