South Africans are broke. And more and more people are turning to credit cards to cover their living expenses.
The latest report from the Experian Consumer Default Index (CDI) paints a concerning picture of the financial health of South African consumers, with the rising cost of living taking centre stage.
And while the raw data is concerning, Neil Roets, CEO of Debt Rescue, one of the largest debt counselling companies in South Africa, said that their own research reveals that about two-thirds of the population are grappling with inadequate nourishment, with 66% of participants in the survey indicating that they are skipping meals due to financial constraints.
“To make ends meet, people are opting for cheaper, less nutritious food, which may have dire consequences, especially for families with young children,” Roets said.
According to the report, Experian Consumer Default Index, the Consumer Price Inflation (CPI) remains high. Driven by escalating fuel costs and significant hikes in food prices, the CPI continues to hover at alarmingly high levels, well outside the South African Reserve Bank's (SARB) target band.
The persistent rise in the cost of living, especially concerning Food and Non-Alcoholic Beverages, is putting immense pressure on households, the CPI report revealed.
In addition, with the cost of living on an upward trajectory, there's been a notable surge in market appetite for credit.
Consumers are increasingly turning to credit to bridge the gap in covering their living expenses. However, the increased cost of living has also led to a decrease in consumers' affordability, making it challenging for many to meet their debt obligations. This has resulted in a likely reduction in qualification for new credit, with qualification levels still not returning to pre-Covid benchmarks.
Fuel and Food Prices continue to bite people in the pocket. The weakening Rand, coupled with other factors, has led to a rise in fuel prices, adding to the cost of living strain. More worryingly, the price of food and non-alcoholic beverages has seen an almost exponential increase over the past year.
This surge is attributed to a rise in global grain and oilseed prices, a weakening Rand, escalating fertiliser costs, and the repercussions of load shedding, which has led to increased supply chain costs.
And as this has a knock on effect, people are turning to credit. The first quarter of 2023 saw a significant increase in the appetite for consumer credit. However, approval levels remain around 31%, indicating that a vast majority of applications are rejected. This underscores the fact that while consumers are looking to credit to cover their cost of living expenses, many are not getting approved. This lack of approval is largely due to the pressure on consumers' affordability amid the prevailing high consumer price inflation rates.
The findings from the Experian CDI report are a stark reminder of the financial challenges faced by South African consumers. The rising cost of living, exacerbated by high food and fuel prices, is pushing many towards credit as a means to cope. However, with increasing default rates and a tightening credit market, the road ahead looks challenging for many households.
Roets said the projected food inflation might stabilise at 10% by end-2023 and that there was a risk of possible interest rate hikes again in the future due to escalating consumer price index inflation, largely attributed to Eskom's load shedding crisis.
He added that heightened load shedding raises costs for retailers, which is inevitably passed on to consumers, due to rising input expenses.
“I strongly warn against using credit and store cards to buy food, as this can lead to an escalation in unmanageable debt,” Roets said.
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