72% of people are spending a third of their salary to repay debt – survey

DebtBusters head Benay Sager offers insight into South Africans’ high stress levels regarding debt, their monthly expenses, and the rapidly rising cost of living.

NZINGA QUNTA: Good evening. My name is Nzinga Qunta and I’m standing in for Fifi Peters. A new survey by DebtBusters says that South Africans feel that very high levels of financial stress are negatively affecting their health as well as their home and work lives. Despite this, many or most people try to deal with the problem themselves, or don’t deal with the problem, rather than seek professional help.

So Benay Sager, the head of DebtBusters, joins me now. A very good evening to you. Thanks so much for your time on the SAfm [Market Update]. How many people were part of the survey and what were some of the key insights that you gained?

BENAY SAGER: Thank you for having me. We had about 14 000 respondents for this online survey, and these are consumers who are currently not in debt counselling but have signed up to our online platform on the DebtBusters website.

We wanted to understand, for the general population, what is the level of debt stress or financial stress or money stress, if you will, and what kind of stress that is putting on the rest of the population.

I think probably there were two main takeaways. The first one is that 70% of the respondents said they were experiencing financial stress and, as a follow-on from that, 94% of these consumers said this stress is actually creating stress in their home life and 77% said that it’s creating stress in their work life.

So one of our main questions going into the survey was ‘Is it financial stress that creates stress in other aspects of life?’ The answer to that was yes. That was probably the first significant finding.

The second significant finding was the fact that women overwhelmingly seem to be more stressed or anxious about finances and other aspects of life [than] men.

We measured this across finances, across home life, across work life, across their health – and in every aspect women were somewhere between 20% and 30% more likely than men to be stressed out about these aspects, predominantly driven by finances.

So I would say these are probably the two more significant findings.

NZINGA QUNTA: Benay, youth unemployment stands at 42.1% for those aged 25 to 34 years. What are your findings about financial stress in younger people?

BENAY SAGER:

The younger people seem to be probably the most financially stressed, particularly those under the age of 25.

They seem to have a particularly difficult relationship with financial stress. We can understand this because we know a lot of our young people are unemployed; so this is probably not a surprise.

As [we moved] up the age bracket I think the situation got a little better, but still I think for our younger people it was quite difficult.

A good portion of them, about 75% of them, said that they were feeling anxious or worried about their finances compared to, let’s say, about 60% of the population that was 45 or older.

Nonetheless I think seven out of 10 consumers answered that they are worried about their finances – and that’s probably not a great place to be for many consumers.

NZINGA QUNTA: Definitely not. I’m going to quote from the survey here now. It says ‘40% of all respondents were spending over half of their take-home pay to repay debt’. And then also ‘72% of all respondents need 30% or more of their take-home pay to repay debt’. You said you are alarmed by this. Why?

BENAY SAGER: At DebtBusters we have something we call the ‘Debt Repayment Sustainability Index’.

We normally try to work off the principle that if a consumer is using 30% or less of their take-home pay to repay debt, they are in a position that is sustainable.

If they are using 30% or more of their take-home pay to repay debt, generally that becomes not sustainable in the long term.

What we saw with the survey was about 72% of the population spending more than 30% of their take-home pay in terms of debt repayment. That’s what alarmed us in particular – that we don’t believe this is sustainable.

But it’s probably not a surprise given the pressures that we are all feeling from interest rate hikes as well as inflation.

NZINGA QUNTA: About 39% of respondents said they didn’t act on their financial stress. Why is that?

BENAY SAGER: This is very interesting. We debated at this point with our psychology team as well. I think what happens with many consumers is they feel stuck, and they don’t really know what to do, and I think in this case that’s exactly what happens.

When people are faced with a crisis, particularly when it comes to finances, they generally react in [one of] three ways.

They either freeze, meaning they don’t know what to do, so they feel stuck; they run away from it, meaning they deny that they have a problem; or they fight it, meaning they try to find the solution.

And about 40% – you said 39% – actually are in the situation where they freeze, or they feel stuck. So I think we are seeing human psychology play out in a very real situation in the South African debt landscape, and that’s why you’re seeing so many consumers feeling like they are stuck.

NZINGA QUNTA: Benay, what would you say are the major causes of financial stress according to that survey, and how would you then suggest that people in those situations respond – and what should they do?

BENAY SAGER: The last two years in particular, two-and-a-half years, have been very difficult for the South African consumer. Many who have an income have had to stretch their incomes, and on top of that support many more people.

So I think the two primary causes are inflation, as we can all feel it – particularly in the month of July with electricity, petrol prices, etc, and food prices. And secondly, it’s the rise in interest rates.

Now what [has] happened with that, particularly over the last few years, is we had historical lows with interest rates. Now we are on the cycle where interest rates are increasing. So both are squeezing the consumers at both ends. Neither are nice things to talk about, and neither are probably going away in the short term.

Now what can consumers do to respond to this? In our view consumers first must understand their real debt situation.

This survey that we concluded at DebtBusters essentially asked consumers about their situation. If you look at the real numbers, it would probably be [more closely] correlated.

But we would encourage all consumers to assess their situation, find out how much they’re spending on debt, find out how much they’re spending on their budget items, and particularly for debt repayments, because [these] make up such a big portion of most consumers’ take-home pay – about 44% on average.

We do encourage consumers to look for ways to restructure that debt, or talk to the people who lent them their money – whether credit providers or banks – or talk to a registered debt counsellor to see whether that might be an avenue for them.

Don’t treat your debt repayments as something that cannot be touched.

NZINGA QUNTA: And then, very briefly, what did you find when it came to what stressed people out in terms of their finances? Was it school fees? Was it credit cards? Was it home loans when it came to debt and repayment?

BENAY SAGER: We took a different approach in terms of this.

We asked people ‘What are you worried about when it comes to financial concern?’

And we gave them options. We [invited] them to choose up to three options, and 52% chose the option that says they’re worried about running out of money before the end of the month; 36% said they struggle to pay all of the debt they owe every month; another 27% said they are concerned about inflation and how it affects their living costs, and 23% said they worry about unexpected expenses such as car repairs or medical bills.

So instead of asking them ‘What is the source of your stress?’, we try to understand how they feel it, how they experience it. I think that’s how it broke down in terms of the survey.

NZINGA QUNTA: Benay Sager, head of DebtBusters, joined me there on the line. Thanks so much for your time and insight into what’s keeping people awake when it comes to debt and the payments that they have to make.

COMMENTS   1

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Between the government and Capitec I am surprised the numbers are not worse.

I know people dig their own graves but when people come and ask for help because they are under threat of lawyers and you look at the underlying credit that created the problem your blood boils.

In the old days when cheques were a thing a nice shortcut was to to write a cheque for a fair amount, include all the language on face of cheque like full and final settlement etc etc (cheques were negotiable instruments). The moment Joshua Doore banks the cheque they are dead in the water.

I miss cheques

End of comments.

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