Just one month after South Africa observed National Savings Month, the Absa third-quarter economic review shows that household savings turned negative in the first quarter of this year, for the first time in three years, coming in at -0.2% of disposable income.

In addition, National Credit Regulator data show signs of worsening consumer debt strain. While new credit applications were down in the first quarter of this year, rejection rates reached a record high of 70.1%, a likely reflection of a combination of worsening borrower financial positions and declining lender risk appetite. 

Absa senior economist Miyelani Maluleke says the mounting financial pressure on consumers is also reflected in the FNB/BER Consumer Confidence Index, which fell to -25 in the second quarter of this year — its second-lowest reading in three decades, with confidence among high-income households falling the most.

“These developments suggest constrained consumer spending over the foreseeable future. Our forecast is for household expenditure to grow by 1% this year and 1.1% in 2024,” he says.

The debt journey of South Africans over the past four years

Meanwhile, a study released last week by the consumer credit bureau TransUnion South Africa shows that between December 2018 and December 2022, 1.1 million consumers diversified their wallets by adding additional credit products. The survey studied the habits of South Africans accessing more debt as they became used to using credit.

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Among consumers who started out (in 2018) with retail and unsecured products in their wallets, 41% chose personal loans to expand their credit wallets, indicating that liquidity is important to support consumption. Of the consumers who started the study period with only unsecured credit, 52% chose vehicle finance as their first foray into secured credit, benefiting from access to private transport and the opportunity to build their credit profile even further.

The TransUnion study focused on consumers whose credit portfolios were classified as non-delinquent at the beginning of the study, because assessing payment history is one of the criteria that lenders examine first when considering a credit application.

“Over the four-year observation period, 13% of consumers in the study graduated to an expanded credit wallet of their own accord. With proactive engagement from lenders, including a focus on credit education, more consumers may be encouraged to graduate from one wallet type to another, more quickly,” says Weihan Sun, director of financial services research and consulting at TransUnion Africa. 

“The more that consumers have the opportunity to access and leverage credit products to facilitate upward financial mobility, the greater the level of financial inclusion and the better the potential for economic growth.” 

Sun adds that consumers who manage their retail and unsecured credit products well, improve their credit profile over time and can graduate to take advantage of secured lending products.

Benay Sager, the head of DebtBusters, points out that in the past seven years, take-home pay increased by 1% while inflation went up by 39%.

“This means that in real terms most South Africans had 38% less disposable income in 2023 compared to 2016, due mainly to the impact of high inflation,” he says.

The DebtBusters Debt Index for the second quarter of this year shows that the debt mix for new applicants has shifted over the past few years, driven by changes in interest rates. Since early 2022, the share of home loan debt has increased and now makes up 27% of new applicants’ debt — the highest recorded in the past several years. DM