Cash-shy SA drowns in debt

Worrying signs that consumers are using credit cards to cover daily living expenses

● South Africans have less to spend than last year and are increasingly turning to credit just to make ends meet.

Battle-bruised from last year’s VAT increase and with fuel prices close to record highs and salaries not keeping track with inflation, consumers are swiping to survive.

Unsecured lending surged in the first quarter, and debt delinquency is on the increase, according to new figures.

Demand for credit remains high and outstanding balances have increased across all major credit categories over the past year, consumer credit agency TransUnion said in its first-quarter industry insights report.

“We have seen consumers increasingly using credit, possibly to finance day-to-day living expenses, and [they] are prioritising the payment of credit cards,” said the agency’s director of research and consulting, Carmen Williams.

Struggling to manage their debt obligations, consumers often keep credit cards alive at the expense of mortgage bond or car repayments, according to TransUnion.

Meanwhile, households’ cost of servicing debt has not budged in the past three months, remaining at 9.3% of disposal income, according to the Reserve Bank’s quarterly bulletin, released this week.

And there have been notable declines in spending on durable goods such as appliances and semi-durable goods such as clothing in the first quarter of 2019, the Bank said. This resulted in a decline in real household consumption expenditure.

Consumers realised trouble was coming, tightened their belts and became conservative in their spending, Momentum’s financial wellness researcher and economist, Johann van Tonder, told Business Times.

The formal sector’s purchasing power has weakened in the past year, he said, adding: “So if your gross income is going down, then you can’t purchase what you purchased a year ago.”

Williams said: “In the first quarter of the year, we observed a significant increase in the level of borrowing on unsecured lending products. We expect that, in part, this increase is due to consumers using credit to help make ends meet.”

Particularly worrying is a continued rise in delinquencies on secured products, which include home loans and vehicle finance, TransUnion said. Loans to buy homes and vehicles are typically granted to lower-risk consumers and secured against the assets they were used to buy.

“But the steady rise in delinquencies for secured products over the past year indicates that even consumers in the lower-risk credit tiers are not immune to the current economic challenges,” TransUnion said.

A separate report by New World Wealth and Mauritius-based AfrAsia Bank showed this week that the total private wealth of people living in SA fell 10% in 2018 in US dollar terms.

We observed a significant increase in the level of borrowing