Will South African youth achieve financial freedom? — Tomorrow’s leaders drowning in debt today

It is not a secret that South Africans are struggling financially; however, data has revealed that the youth account for most of the debt and credit activity in the country.

While those under the age of 35 shoulder the burden of unemployment, young professionals also shoulder the burden of debt and credit, with Vantage’s data revealing the youth holds 62% of new credit accounts.

Damon Sivitilli, CEO of Vantage Debt Management, said 39.97% of their new clients seeking debt counselling are under 35, almost double since 2020.

“This alarming trend paints a worrisome picture of a generation burdened by financial strain.”

A generation caught in debt

He said Millennials and Gen Zs in the second quarter of 2024, the two generations accounted for 62% of new credit accounts opened, with Gen Zs leading the way.

Millennials are born between 1980-1994. Gen Z are those born between 1995 and 2012.

TransUnion correspondents the information, as their data revealed that 60% of the credit went to those aged between 26 and 29, and one-third of those who opened new credit are between the ages of 22 and 25.

This new credit is for vehicle financing, clothing accounts, credit cards, and personal loans.

Debt and credit adoption

Sivitilli added that the surge in credit adoption among the youth reflects a shift in financial habits, and most importantly, it raises concerns about the risks of over-indebtedness.

“Gen Z now comprises 15% of the country’s credit-active population, with a 22.7% yearly increase in credit card originations.”

He believes that the youth are ill-equipped to handle the responsibilities of borrowing, which could potentially lead to a financially unstable future.

The issue extends beyond credit cards, as more young people enter the credit system without adequate financial literacy to navigate it effectively.

The complexities of youth unemployment and debt

Youth unemployment sits at 44.6%, according to Statistics SA.

Youth unemployment decreased by 133,000 to 4.7 million, while the number of employed youth increased by 37,000 to 5.8 million.

This has led the youth to turn to untraditional sources of income, such as social media, which doesn’t necessarily translate into financial security.

He added that many youths enter credit agreements without fully understanding the implications.

Sivitilli said the desire to keep up with consumption through e-commerce platforms and on-demand services pushes younger consumers more deeply into the credit market.

However, this only increases the risk of falling into debt traps, especially when they lack solid financial foundations.

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Is credit inclusion a blessing or a curse?

He said the rise of credit activity in younger generations is not necessarily harmful; it provides financial inclusion and growth opportunities.

But it also creates a ticking time bomb.

“Gen Z and Millennials even accounted for 61% of new credit activity, yet the complexity of their financial needs is often overlooked.

“For instance, Gen Z’s increasing share of vehicle finance originations, up 3.3% yearly, suggests that many are taking on substantial vehicle loans, often without the experience or credit profiles necessary to manage such debt.

“On top of the new vehicle repayment, additional budget items for insurance, petrol, and maintenance are often overlooked.”

Most young people go for clothing accounts.

He said a significant portion of the credit by the youth is due to clothing accounts, especially when it comes to Gen Z.

“While clothing credit may seem like a relatively low-risk entry point into the credit ecosystem, it often is the gateway for much larger debts, including personal loans and vehicle finance.”

Why financial literacy matters more than ever

For many young South Africans, the transition into complete financial independence can be daunting.

The rise of new credit products, particularly in sectors like vehicle finance and clothing, suggests a growing reliance on borrowed money to meet consumption needs.

But the true challenge lies in financial education.

Sivitilli said that with an increasing number of young professionals entering the credit market, comprehensive financial literacy programs are urgently needed.

“Educational initiatives can help equip young people with the knowledge to build healthy credit profiles, manage debt responsibly, and ultimately avoid the long-term consequences of poor financial choices.

“Without these tools, many may face mounting debt burdens as they navigate a complex economic landscape.”

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A sign of financial inclusion and a warning signal

He said the increase in credit activity among the youth is a sign of financial inclusion and a warning signal for the future. 

“This is a crisis that shouldn’t be ignored. We are witnessing a generation struggling under debt, their dreams of a secure future fading away.” 

He said the government, financial institutions, and consumer protection bodies must prioritise financial literacy to ensure these young professionals can manage their debt responsibly and build a stable financial future.

If not, the hidden debt crisis among young South Africans may soon reach a breaking point.

He added that the youth must understand how to build and manage credit effectively.

“Credit may be an essential tool in today’s economy, but it is equally important to recognise its potential to spiral into a crisis if used irresponsibly.

“With the proper education and support, South Africa’s youth can navigate the complexities of the credit system and secure a more financially stable future.”

Is credit important?

TransUnion’s second quarter 2024 Consumer Pulse Study revealed that 91% of consumers believe that access to credit is essential.

Gen Z consumers’ top three anticipated new credit products are personal loans (35%), credit cards (26%), and student loans (25%), all considered entry-level products.

Lee Naik, CEO of TransUnion Africa, said economic requirements typically drive growth in new credit products issued and use of existing credit as consumers take on credit to boost their available income during challenging economic times.

Can SA youth build a financially stable future?

1Life Insurance’s 2024 generational wealth youth survey looked into whether the youth can build a financially stable future.

The insurer said the youth are far from achieving financial freedom and building wealth, which places them at a tremendous disadvantage.

The study said more than 50% of the youth do not know how to build a financially stable future.

While only 30% of the youth have a solid monthly budget.

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A gap in financial education

Siphelele Sokhela, Brand Manager at 1Life Insurance, said they have identified a significant gap in the youth market regarding financial education, despite being the future ones that have the potential to build wealth and break generational debt in their families.

“If we consider that the current cost of living has already made it hard for households to get by, this gap is an indication that this reality may not change anytime soon, and in some families, it may never change if the youth are not equipped to carefully and smartly manage their money.”

Their data show that less than 20% of youth have any form of insurance, which means that a small portion of those employed have the necessary financial protection in place should the worst happen.

“Furthermore, only this small portion has a real shot at breaking the debt chain and building generational wealth in their families.”

How can the youth get by?

“Having money is one thing, and knowing how to use it is another,” said Sokhela.

He added that the current economy has made it tough for South Africans to get by, and without a budget in place, it is impossible to manage money wisely.

“Regarding financial literacy, over 45% of the respondents indicated that their source for managing their finances is social media.

“While one could get away with not having financial literacy in the past, that is no longer the case.

“Financial literacy has become a necessity for all South Africans, not only when it comes to meeting the day-to-day financial demands, but also in ensuring that one builds a financially stable future for themselves and their loved ones.

“No doubt, the current economic situation is hard on the pocket, but tools are available to help the youth build financial stability amid the economic chaos.

“The best way to navigate these challenging times financially is to seek financial education and speak with a financial advisor or insurer.”

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