More South Africans Using Credit To Cover Expenses

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The constant rise in cost of living is a major concern for many South Africans. The cost of food, transportation and sustaining debt has risen so high that it has stirred up intense financial insecurity in most households.


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These living costs are rising against a fixed salary, which leaves most people with less disposable income and has now forced more South Africans to take out additional loans and credit to cover their monthly living costs.

According to a new report by research firm Eighty-Twenty, around 800 000 people took on credit in the fourth quarter, which is an increase from the 600,000 that was seen last year.

The report noted that while there were more than 800,000 new entrants into the credit market this quarter, it has come with a surging number of loans, notably credit card, vehicle, and asset finance (VAF) and home loans, that are newly in default.

Director at Research Firm Eighty-20, Andrew Fulton says that because of the amount of defaults and ballooning credit balances they were able to identify that people are using these loans and credit to cover day-to-day expenses.

We can only hypothesize on these things, but there was quite a surge in new entrances in the credit market, and one if the hypothesizes is that people are taking this credit in order to pay for those day-to-day food and clothing purchases.

Fulton noted that the increased appetite for taking out credit can be seen as good thing, however it does not look sustainable and there are many challenges that may follow.

"One of the challenges we have noticed with those 800 000 though is the quality of credit of the credit, it’s called thin file clients and it’s not terribly good and it creates risks."

He said that individuals are also taking on a lot of risks and engaging in various side-hustles to make ends meet and supplement for where their monthly income is lacking.

“People are saving money in terms of how they purchase, trading down in terms of luxury goods and using less luxury goods and even brand names to using no name brands," said Fulton. 

Furthermore, the report also showed that just over one million credit-active students and scholars make up less than 1% of the total credit market in South Africa.

Eighty-20 noted that this credit behaviour is concerning and volatile, as would be expected from a segment using credit for the first time and most likely lacking in financial education.

 

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The Consumer Price Index (CPI) is a monthly measurement where the price of a range of consumer products are measured. The difference in the price of a good is its inflation.

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