The South African Savings Institute (SASI)
launched its annual Festive Season Savings Campaign in a year where the demise
of African Bank highlighted that the escalation
of arrears has reached levels previously unknown of in unsecured lending to
credit-hungry South Africans. Prem Govender, Chairperson of SASI, says, “We not
only have to develop a robust culture of saving in South Africa, but we also
need to educate consumers about the pitfalls of giving in to easily accessible
credit they simply cannot afford. The Festive Season is a particularly
vulnerable time for all income brackets and consumers need to remember the
demands that the New Year will bring.”
Panellists from SASI, the
National Credit Regulator (NCR, the Financial Planning Institute (FPI), the
Bureau of Market Research-UNISA and the National Consumer Education Committee
representing the Provincial Offices of Consumer Protection, presented research
insights and discussed South Africa’s savings and credit landscape in light of
the upcoming Festive Season pressures.
The
Consumer Financial Vulnerability Index indicates that the pressure on
consumers’ cash flow has remained consistently high throughout 2014.
International and domestic uncertainties as well as disruptive events such as
labour strikes, contributed to the dampening income levels, negatively
affecting consumers’ cash flow decisions.
“Debt to disposable income in South
Africa has almost doubled from 1980 to 2013, from 41.9% to 75.2%. As the
savings rate fell in the same period, indebtedness rose significantly,” says
Govender. “South Africans continue to spend more than they earn in an
environment of growing inflation and rising interest rates. This is compounded
over the Festive Season when money is used to celebrate rather than being put
aside for unavoidable New Year obligations such as equipping children for
school, getting to work, medical expenses as well as food costs.
Consumers are also tempted by offers of credit such as store cards and short
term loans. They then mismanage this debt, incurring high interest rates and
becoming further indebted.”
It is clear that consumers are inundated with
offers of quick and easy cash, and much has been made of the unsecured lending
industry in South Africa. Reserve Bank data shows a massive increase in
South Africa’s exposure to credit in the private domestic sector. From 1994 to
2010 sector increased from R230 billion to close on R2.1 trillion.
Against the background of this credit crunch,
the South African government has implemented a credit information
amnesty from April 1 this year, giving all consumers a fresh
start with a clean credit record. At the same time, draft regulations on more
stringent affordability assessments that credit providers will have to
undertake before they grant credit to customers were published by the
Department of Trade and Industry for public comment before the end of August,
and will soon come into play. In the meantime, the exploitative behaviour of
lenders makes them increase their credit offers to cash-strapped consumers.
“Credit mismanagement remains a threat to the accumulation of household savings. We are however, encouraged by the reforms relating to credit,” says Govender. “Responsible spending over the season – without incurring debt – is vital for the long-term financial wellbeing of South African households. Our message is simply to remind consumers to spend wisely, avoid unnecessary consumption expenditure and the credit trap.”
The Consumer Credit
Market Report issued by the National Credit Regulator
(NCR), offers insight into how much credit is being granted nationally, and
provides data on SA’s total debtor’s book. The report shows that the nation is
becoming increasingly indebted. The total value of new credit granted increased
from R105.60 billion to R107.19 billion for the quarter ended June 2014, an
increase of 1.50% when compared to the previous quarter but a decrease of 2.21%
a year ago. However, the number of applications for credit increased by 7.21%
for the quarter.
The
total outstanding gross debtors’ book of consumer credit for the quarter ended
June 2014 was R1.57 trillion, representing a quarter-on-quarter growth of
1.16%.The banks’ share of total credit granted was 81.31%. Other credit
providers, including micro-loan lenders, are at 8.13%m followed by non-bank financiers
at 6.53% and retailers at 4.03%. Unsecured credit agreements and credit
facilities which consist mainly of credit cards, store cards and bank
overdrafts increased by 2.64% and 2.31% quarter-on-quarter, while Short-term
credit showed a quarter-on-quarter increase of 4.75%.
The
2014 Finscope survey reveals that 4.9 million people are showing signs of
over-indebtedness, an increase from 4.7 million in 2013. The use of personal
loans from a bank is on the increase with 1.6 million people in 2014 compared
to 1.2 million in 2013. 36% of adults have formal credit facilities from
non-bank financial institutions which could be in the form of store cards, hire
purchase (HP) credit, cellphone contracts and outstanding balance for a service
offered. The survey further indicates that borrowing from family and
friends is on the increase at 3.7 million in 2014 up from 1.8 million in 2013.
“When
it comes to consumer credit, it is clear that South Africa has its back against
the wall,” says Govender. “Reserve Bank stats show that a significant number of
consumers use much of their disposable income to service debt and that
unsecured lending is what is largely driving the debt spiral. Consumers are
also turning to the financial sector to take advantage of unsecured borrowing,
in part to pay for essential costs such as food and paying utility and medical
bills.” In an environment where incomes are not increasing in tandem with
households requirements, this poses a threat to consumer’s welfare if they
cannot service their debts in the required time.
According to Govender, it is
imperative that consumers are aware of their rights and responsibilities when
entering into credit agreements. “Consumers must know that they cannot be
charged excessive interest by credit providers. At the same time, we are
encouraging consumers to take control of their finances and advising them not
to enter into credit agreements when they know they will not have the financial
capacity to repay their loans. Otherwise they compromise their welfare and that
of their families. We strongly encourage consumers to use the services of
financial advisors, who are doing pro-bono work in selected areas during the
Festive Season.”
The
2014 Finscope shows that while there has been an increase in the salaried adult
population in 2014 (7.2 million in 2004 to 12.4 million in 2014), there is also
an increase in dependence on government grants (19% in 2004 to 30% in 2014).
78% of the adult population earned an average personal monthly income of less
than R2 000 per month in 2014, and only 44% of the salaried individuals have
any long-term savings or retirement products.
Govender highlights that
with interest rates increasing in an inflationary environment, the cost of
living will continue to rise. The New Year
will bring new tax implications that consumers need to be aware of. “While it
is encouraging that the current tax reforms and policies which incentivise
savings and the creation of long term wealth, a potential tax increase in the
new year to service the goals of the Medium Term Expenditure Framework will hit
consumers hard, particularly the emerging middle class,” says Govender.
The
final word comes from the Deputy Minister of Finance for South Africa, Mr Jonas
Mcebisi. “With no savings, households are likely to borrow more to deal
with shocks to their income and expenditure. The danger is that excessive debt
tends to linger and negatively affect our self-esteem. Let us save, even if it
is little money from the various grants we get, rather than get into debt.”
The
Institute will together with the Provincial Offices of Consumer Protection and
the Financial Planning Institute spend the month long campaign conducting
consumer education workshops in key strategic areas and Provinces round the
country.
(ENDS)
Tips
to survive the festive season
1. Resist
SALE, think SAVE! Clearly distinguish between needs and wants.
2. Make
your own Christmas gifts and only take holidays you can afford.
3. Have
a clear budget for your requirements in the New Year. Create a budget using the
SASI budget tool.
4. Use
free online tools to track your spending and debt and know where every cent of
your income goes.
5. Pay
cash for all purposes and don’t be trapped by easy credit – in fact, cut up
those store credit cards!
6. Visualise
what you want to save for and start saving more. Save your bonus and make it
multiply.
7.
Service your debt and stick to the payment
terms. If you cannot service your
monthly debts discuss
your situation with
your credit providers before it is too late.
Consumers can seek
assistance from
a registered debt
counsellor
by contacting the
NCR on 0860
627 627.
Avoiding
the credit trap
The
cost of buying on credit, even for a short period such as two years, can result
in a consumer paying the effective interest of double the quoted price. The
maximum interest rate allowed by the National Credit Act is 21% a year. Once
initiation fees, monthly premiums for compulsory credit life insurance, service
fees and VAT have been added, R5000 spent on credit today at a large retail
store may cost between R6 200 and R9 000 by the time the debt is
repaid over 24 months. It’s better to pay cash, or even consider that if
the instalments were paid into a saving vehicle, you can end up multiplying
your cash.
Credit
also needs to be carefully managed. According to the National Credit Regulator,
almost half of all credit-active consumers have impaired credit records and
9.53 million consumers are in arrears by three more months or more, or have
judgement or administration orders against their names.
(ENDS)
Contacts for interviews,
photographs and information:
Chillibush Communications
Issued
on behalf of:
South
African Savings Institute, +27 (011) 269 3789
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