Economists have predicted reduced spending during the Black Friday period and the festive season following revelations that consumer debt has increased to alarming levels.
While Black Friday is officially this Friday, retailers have already begun offering specials, some of which will last until month-end.
This comes as DebtBusters’ Debt Index for Quarter 3 revealed that more South Africans are seeking debt counselling compared with the same time last year and a large part of their money is going towards paying debt.
Benay Sager, executive head of DebtBusters, said the demand for debt counselling and online debt management continues to grow, with debt counselling enquiries up by 28% compared with Q3 last year.
“The use of online debt management tools increased by 65%, with particularly younger consumers using these to manage debt more proactively,” said Sager, adding that the average interest rate for a bond has risen from 8.3% in 2020 to 12.4% in 2023.
Sager said statistics on consumers who applied for debt counselling in 2016 compared with 2023 indicated that 40% of people had less purchasing power.
“There is a higher debt-service burden. On average consumers are spending 63% of their take-home pay to service debt. Those taking home R35 000 or more need to use 67% of their income to repay debt.”
Professor Irrshad Kaseeram, from the University of Zululand’s Economics Department, said households are beleaguered with high interest payments.
“The prime lending rate during the 2020/21 Covid-19 period averaged 7.25%.
“Today it is at 11.75% and is expected to remain that high at least until June 2024 given our high inflation level, especially due to food and fuel.
“Thus any hire purchase over the Black Friday period as well as in the build-up to Christmas will result in an elevated debt burden and further applications for debt counselling.”
Kaseeram advised that consumers ought to make every attempt to reduce their debt burden.
“Our economy is growing marginally, hence real incomes will remain low for the foreseeable future. In short, consumers must tighten their belts to avoid financial stress for at least the next two years.”
Economist Dawie Roodt said there would be less spending during Black Friday and the festive season.
“It is clear that South African consumers are getting more into trouble with debt. They are becoming more distressed and have less money available to spend on different things. That is likely to affect total consumption, expenditure and spending in the economy and when that happens we are going to see fairly weak spending over the Black Friday and the festive season period.”
Neil Roets, CEO of Debt Rescue, said the 2023 Debt Index by DebtBusters sheds light on the financial challenges facing South Africa.
“A major concern is the persistent strain on consumers stemming from unsustainable debt levels and the rising cost of living.
“There is an urgent necessity to consider debt counselling as the primary solution for anyone grappling with financial distress.”
Roets said debt counselling offers a proven and effective remedy.
“This approach involves substantial reductions in monthly repayments on unsecured debt, enabling consumers to restore financial stability, paying their living expenses every month, and preventing legal action.
“As the demand for debt counselling grows, the spotlight on its ability to empower consumers in navigating financial challenges becomes increasingly crucial.
“No consumer is spared from the impact of inflation and interest rates, and it doesn’t seem likely that there will be any respite soon.”
Dick Forslund, a senior economist at the Alternative Information and Development Centre (AIDC), said more and more people are falling behind on their debt repayments.
“It is a fact that more and more people are going for debt counselling and it seems more and more people are relying on credit.
“It’s definitely a social problem and people are having less money to spend.
I would say consumers should be wary about buying on Black Friday as it could lead to more debt. Prices are inflated before Black Friday and then reduced during Black Friday, so in actual fact there is no saving for the consumer.”