I don’t mean to be a Grinch, but …

Blog Post11/26/2018

I love a good infographic. It’s a great way of bringing facts to life in a quick, visual way. But sometimes, they don’t tell the whole story. Right now, we’re seeing a lot of discussion on social media around this infographic, about income levels in South Africa.

On the face of it, it’s fairly shocking. 98% of the total population earns less than R19 000 a month, we are told. And in a country where the monthly living wage is R6 400, 8 out of 10 South Africans are earning less than R3 800. Terrifyingly, 25% of working South Africans earn less than R531, which this graphic denotes as the ‘food poverty line’.

To be clear: this gap between the haves and the have-nots is one of the biggest challenges facing us as a country. But as far as the infographic goes, there’s a bit of sensationalism happening here, and not enough context. For a start, we’re not talking about the total population of South Africa, as the graphic suggests. We’re talking about the working population – which is around 32 million people, as opposed to 57 million. Of these, 25 million have active credit profiles.

Let’s dig a bit deeper: what do all these numbers really mean? How do income levels affect us as a country?

A good starting point is TransUnion’s quarterly Consumer Credit Index (CCI) for Q2, which is basically a barometer for how consumers are managing credit within their earnings. The most recent Index painted a picture of households that are struggling with cash flow and are increasingly not able to meet their financial obligations. The CCI fell for the first time since 2016, with a larger increase of accounts in arrears.

So if 90% of working South Africans are earning less than R7 300 a month, what do they do with their money? Our data clearly shows that a lot of it goes towards servicing debt burdens. In other words, South African consumers are hugely indebted right now. On average, people earning between R6 000 and R7 000 per month use more than a third of their income to service debt. That’s before they’ve paid rent, transport costs or bought a loaf of bread. Let alone splurged on a new TV on Black Friday, or bought Christmas presents. Once these expenses are factored in, the average South African Debt-to-Disposable income ratio climbs to 71% which leaves very little left over for saving.

Even the higher income earners carry high levels of debt in relation to their earnings. People earning R35 000 a month pour an average of R15 000 a month into their debt pile. The difference is that they’re better equipped to service that debt: around 40% of South Africa’s lowest earners are three months or more behind on debt payments, but that figure drops substantially as you move up the earnings chain.

These numbers are particularly relevant as we move into ,Black Friday and a month of festive spending madness. The holiday season is traditionally a time when we loosen the purse strings. But for consumers already struggling with a mountain of debt that they’re battling to repay, we’re looking at a recipe for a cocktail that’s going to leave a lot of people with a massive financial hangover in the New Year.

So what does this mean for the coming holiday season? Here are my top tips to survive the holiday mayhem:

  • 1. Have a strategy: Avoid buyer’s remorse by going into this sale and holiday season with a budget, and the right information to make informed decisions. Take the time to familiarise yourself with the prices beforehand so you know what a good deal looks like. Stick to your list, and avoid impulse buys.
  • 2. Avoid the debt trap: Call me Captain Obvious, but this is a no-brainer. Know exactly what your income and expenses are, your monthly costs and debt obligations. Know how much you can afford to spend, and stick to it.
  • 3. Get smart with your payments: Interest rate hikes are coming next year, so you’re going to be paying more for your debt – home loans, personal loans, credit cards. Pay off your high-interest credit facilities first. And if you really need to take on new credit, shop around for the best interest rate.
  • 4. Keep an eye on your score: Your credit score offers some telling insights into the state of your finances. Keep up to date with your credit profile, and watch for any warning signs that might lead to a negative credit assessment by lenders.
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