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South Africa’s middle class is in big trouble

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New data from debt counsellor, DebtBusters, shows that the combined pressures of increasing interest rates, rising inflation and a diminished ability to borrow have led more consumers to pro-actively seek help – with enquiries about debt counselling having increased by 17% compared to the second quarter of 2021.

The group’s Debt Index for Q2 2022 is compiled from data provided by clients who have applied for debt counselling.

“Our recent Money-Stress Tracker survey showed that inflation was one of consumers’ top three financial concerns and has been cited as one of the main reasons for debt counselling enquiries,” said Benay Sager, head of DebtBusters.

The Q2 2022 Debt Index showed that without any meaningful increase in real income South African consumers are still using unsecured debt to supplement their take-home pay, he said. While the ability to take on new credit may now be somewhat more constrained, as the slight decline in unsecured debt levels indicates, the average loan size has increased by 28%.

When compared to 2016 data, the Debt Index shows that in Q2 2022 people who applied for debt counselling had 34% less purchasing power.

“Nominal income was the same as 2016, but when cumulative inflation over the past six years is considered, purchasing power declined by 34%. Inflation in 2022 is significantly higher than at any time since 2016. This combined with successive interest-rate increases and no income growth will intensify the pressure on consumers.

Middle-class the hardest hit 

Consumers applying for debt counselling are spending about 63% of take-home pay to service their debt. And for the middle class, that figure lifts to 66%.

DebtBusters’ data shows that South Africa’s middle-class have been the hardest hit.

For those taking home more than R20,000 per month, the total debt to annual net income ratio is 147%. And those people earning between R10,000 – R20,000 per month are also feeling the pressures of both interest and inflationary increases. The overall debt-to-income ratio for this group is at 127% – close to the highest recorded.

“In these circumstances, consumers need to do everything possible to reduce the cost of credit and protect their assets. For most consumers in such a situation, debt counselling is the best option available,” said Sager.

The debt to annual net income ratio for most income bands is lower than a year ago, except for consumers with net income of R5,000 or less per month, while those taking home R10,000 to 20,000 per month seem to be under sustained financial pressure, he said.


Source: Staff Writer |


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