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Consumers urged to avoid pre-lockdown spending habits

DebtBusters’ COO, Benay Sager, said although inflation was at the bottom end of the Sarb’s target range at 3%, the reality for most people was that incomes were not going to increase.

Picture: Supplied.

JOHANNESBURG – With restaurants and personal care services reopening amid the COVID-19 pandemic, South African consumers have been advised to try and avoid falling into pre-lockdown spending habits.

According to DebtBusters’ quarterly debt index for the first three months of this year, even before the national lockdown, consumers were facing increased financial strain and taking on more debt to supplement incomes that declined in real terms.

DebtBusters’ COO, Benay Sager, said although inflation was at the bottom end of the South African Reserve Bank’s (Sarb) target range at 3%, the reality for most people was that incomes were not going to increase.

And with the local economy expected to shrink significantly this year, it was unlikely many employers would consider or be able to give pay salary increases.

“A combination of reduced earning potential in a contracting economy and inflation will considerably increase the pressure on consumers. This leaves them with a stark choice: borrow more to make up the shortfall or reduce their expenditure,” Sager said.

Sager said that with an average total debt in Q1 2020 up 33% compared to the same period in 2016, for the majority of consumers borrowing more was not an option.

The debt index showed DebtBusters’ clients earning more than R20,000 in the first quarter of the year already had a debt to annual income ratio of 142%, which was unsustainable.

“A reality of the new normal is that it will be harder and more expensive to borrow money. In a dire economic environment, lenders will tighten lending criteria and increase rates to offset risk,” he said.

Sager said consumers would quickly need to come to terms with the fact that they cannot return to their old spending habits and look for ways to cut unnecessary expenses.

“As South Africa emerges from the lockdown its vital that consumers keep a careful eye on their income and expenditure and get professional help if they realise, they’re getting into trouble. The earlier someone seeks help the easier it is to develop a plan to negotiate with creditors to help them get out of debt. If they wait too long, those options may not exist.”

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