TRENDING: Cash-strapped consumers are stressed & fearful

by Louise Burgers. Many consumers are in pure survival mode right now. A recent survey by DebtBusters has revealed how more than half of consumers fear running out of money before the end of each month, following the financial shocks of the past few years and a tanking economy. The (in)famous South African ‘resilience’ is in tatters and has become a swear word, rather than an attribute, as consumers continue to struggle.

The high levels of financial stress are negatively affecting the health of South Africans, including their personal and work lives, DebtBusters revealed. Despite this, most are reluctant to seek help to deal with their financial problems, preferring to try deal with it themselves. In one of the largest survey’s done to date to determine how financial stress impacts South African consumers, DebtBusters’ new Money-Stress Tracker polled 14,000 respondents subscribed to the DebtBusters website. Importantly, none of the respondents were currently undergoing debt counselling.

Up to 70% of respondents said they were experiencing financial stress. Of these, 94% felt this was impacting their home life; and 77% their work life. And worryingly, 76% believed it was affecting their health, which of course will have an impact on the healthcare sector and personal medical bills down the line. Generally, women were more stressed about their finances, home and work life and health, than men. Women were 30% more likely than men to be stressed about their health because of financial stress, and 20% more worried about paying their debt each month, compared to men.

These economic woes mean that over half of South Africans (52%) are stressed and anxious about running out of month before the end of each month, said Nosiphiwo Nxawe, manager of payments at DebtBusters. That is a shockingly high figure. Even worse, is that 40% of all respondents are spending over half their take-home pay to repay debt, which is not sustainable. Other major financial stresses, according to DebtBusters were:

• 36% struggle to pay off debt each month
• 27% are concerned about inflation pushing costs up
• 23% worry about unexpected expenses as many do not have emergency funds
• 15% are battling to pay school fees
• 12% worry about having enough to retire on.

Perhaps unsurprisingly, financial stress was most acute amongst the younger respondents and those with less income. “More alarmingly, 72% of all respondents need 30% or more of their take home pay to repay debt. One can conclude that 72% are in an unsustainable debt position. “This is simply untenable, so it’s not surprising that stress levels are so high,” commented Nxawe.

Economic shocks

It is of course hard to mitigate against some of the risks because of the shocks to the economy and to many business sectors over the past few years due to pandemic lockdowns, and the resulting in job losses; reduced salaries; rising interest rates and inflation due to the current economic downturn; the impact of the war in Ukraine on supply chains and commodity/food prices; and of course the ongoing loadshedding in South Africa, which puts further pressure on cash-strapped businesses and consumers.

Head of DebtBusters, Benay Sager, told Retailing Africa that the problem was that the South African economy was already limping along when the COVID-19 pandemic hit, and the world was still suffering from the lingering effects of the global financial crisis. “As a result of the pandemic, there is now economic havoc; and increased isolation of individuals from each other, which has impacted mental health. We don’t know the long-term implications of this. For many individuals there has been severe loss of income, total or partial; or total loss of their jobs. Now we have a rise in interest rates; and a rise in inflation, which is a global phenomenon.

“It’s a dreadful list. Many people are in pure survival mode right now. The short-term survival instincts have kicked in for many people, we can see that from the survey, with only 12% of people currently worried about saving for retirement. We should all be worried about that, but people can’t focus there. It feels like the end of the world. But it’s not the first time this has happened; and it’s probably not the last time. Lots has happened in a short space of time. Context is important: ‘there are some weeks when decades happen; and there are decades when almost nothing happens’. But in all of this, we need to find the opportunity,” he encouraged.

He’s not wrong. I remember having a 21% interest rate on my car repayment in the 1990s. Sager remembers 25% interest rates on home loans. He urged consumers and business not to be discouraged, because there is light at the end of the tunnel, to use another trope:

• A lot of money is being spent on innovative solutions, like payments, credit, and so on.
• Companies are much better positioned to do credit risk assessments now, as they have a lot more data, and they use it.
• There is more data on consumer behaviours, as cash transactions completely stopped for a while during the pandemic, with a spotlight on how credit decisions were made.
• From a retail perspective, there is more of an effort made by all the retailers to buy more local, whether it is due to supply chain pressures; and more local brands have come to the fore in our malls. Retailers should encourage consumers to buy more local too, said Sager.

Frozen in fear

Reactions to dealing with financial stress ranged from cutting back on monthly expenditure to selling personal items, with most people (43%) opting to tighten their belts, the DebtBusters survey found. At least 26% were looking to increase their income by finding a better job. Unsurprisingly, younger people were more likely to seek higher-paying jobs. However, one in six (14%) said they felt stuck and didn’t know what to do. When asked why they hadn’t acted to alleviate financial stress 39% responded they ‘felt stuck’; and 23% said they needed more time to think. Psychotherapist and transactional analyst, Diane Salters, said people seeking debt counselling are probably going to feel shame and fear; not be thinking clearly; and ready for fight, flight, or freeze.

“Those in freeze mode will likely feel stuck. Many responded this way in the survey. Those who are in flight mode will say they don’t need debt counselling, when the overall numbers saying they are experiencing the effects of financial stress on their lives indicate they do. If they freeze, they will do nothing. Or they may be ready to flee or fight the debt collector, their partner or spouse, or even their debt counsellor,” added Salters.

How to help consumers

Consumers are not always completely truthful when it comes to their financial situation, Sager pointed out, and the onus falls on the entity granting credit to make careful credit checks; and ascertain whether the consumer’s declaration is realistic, given inflation and interest repayments.

He emphasised that financial literacy was important and industry resources should be ploughed into helping consumers have a real relationship with money and credit. “Credit is what gets some of these consumers into trouble and that is something we can control to a certain extent. We need to prepare interventions that are practical for the consumer, like restructuring their debt, if that is an option.”

Nxawe said that comments from respondents who were currently under debt counselling reflected the informal feedback DebtBusters’ receives from clients. “Once the decision is made (to proceed with debt counselling), most people feel an immense sense of relief. The fact that once in debt counselling, they aren’t constantly having to answer phone calls about outstanding payments also helps alleviate a lot of the stress.”

Sager was positive about the lay-by systems being introduced more widely by retailers, which encouraged consumers to ‘save’ by putting money towards items they wanted each month. He also raised the ‘buy-now/pay-later’ concept and advised extreme caution in our market. “Innovation is welcome, but it is not always evident to the consumer who they are paying back and how much interest they will owe with buy-now/pay-later deals. In an environment where interest rates are going up so quickly, some consumers may be caught off guard.”

Main image credit: Pixabay.com.

Louise Burgers is the Publisher and Editor and Co-Founder of RetailingAfrica.com. She has spent over 20 years writing about the FMCG retailing, marketing, media and advertising industry in South Africa and on the African continent. She has specialised in local and Africa consumer trends and is a passionate Afro-optimist who believes it is Africa’s time to rise again and that the Africa Continental Free Trade Agreement (AfCFTA) will be a global gamechanger in the next decade.

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