The season is turning. Winter is coming. Soon, your hollow-boned teenager will need a new winter school uniform. The world might have been brought to a standstill for months, but it did not stop your kids from growing taller. You may only need half a smart outfit and bunny slippers to conduct your zoom meetings but not so your kids – at least on alternate days.
Sooo… how will you pay for it?
Maybe you are one of the many parents who are breaking their heads over which bit of plastic contains enough juice so that you can tap-‘n-go at the School and Leisure Store. Maybe you will have to resort to moving money around from the outer corners of your revolving overdraft, your credit card, a pay-day micro-loan at the ATM, or resign yourself to buying your groceries on your Woolworth’s account for the next month.
Just how are ‘me and Mrs Jones’ dealing with our debt?
To answer this question, the Credit Bureau Experian has published its latest Consumer Default Index (CDI). This shows the areas in which South Africans are struggling to pay off their loans and debts.
How, you may ask, do they know what you and Mrs Jones have been up to? Surely this is private information! It is not a plot against you. Your private business is not being broadcast to the Lizard People via the 5G towers, nor will it be via the chromosome-altering COVID-19 vaccine.
Remember your Credit Score?
Your credit score tells us about your individual credit worthiness but, when reviewed alongside thousands of others, it can also be used to help economists take the temperature of our economy. Our economy is definitely not well. I am sure you feel the symptoms when you need to make a big buy like school uniforms for next term.
The CDI reveals how many of us are defaulting on our home loans, car repayments, personal loans, credit cards and store credit facilities.
Here is a colourful table to show the findings of the Consumer Default Index (CDI)
In December 2019, the CDI index was 3.97. a year later it stood at 4.07.
It does not look THAT bad, I hear you say
Many would have thought we would be much worse off! It even seems like we are doing better in some areas. Let us consider what the data means:
- Year-on-year deterioration – the largest culprit was the worsening repayments in vehicle loans: 3.26 in December 2019 to 4.42 in December 2020. (Ironically, we drove much less during this time!)
- Home loan index – this improved slightly as many consumers used the drop in interest rates to try to catch up.
- Personal loan index – This is the one that seemed to cause the most distress as it deteriorated from 9.04 in December 2019 to 9.81 in December 2020. The pandemic continues to put personal resources under pressure and unfortunately many South Africans report to personal loans to meet their monthly obligations.
- Credit Card index – life has not been much fun lately, so entertainment spends are down. So are the costs of commuting to work. This drop seems to show up for retail store cards as well though we know online purchases has gone up.
Jaco van Jaarsveldt, the Chief Decision Analytics Officer at Experian Africa, said that the improvements in certain areas is not really an indicator of what a disciplined bunch we have become. ‘Despite the improvement in Q4, it should be noted that this is not because of an overall improvement in the financial performance of the average South African consumer.’
It means that we can see in numbers the ravages of the pandemic. And wed will continue to do so for some time. We are not spending less because we want to pay off our debt. Many of us genuinely do not have the money.
It has become harder to borrow money now as lenders have been feeling the tightening of their belts and therefore feel it is only fair to pinch back. You, the consumer, will get a much sterner look.
What saved our bacon last year may make this year leaner
- Payment holidays – This was meant to benefit those whose immediate income was disrupted. Though the payment demands were halted, the interest on those payments still accrued, meaning there are more to pay off now.
- Interest rate cuts – This has made it possible for some to gain access to the property market. This might have been a stretch for some and may become less affordable, should rates rise again. Many banks and other loan institutions are concerned about this and have been much stricter with approving home loans.
- Lowered inflation rate – These were intentionally lowered to soften the blow of the hard lockdown but is not sustainable in the long run.
- Restrictive lockdown measures – During the hard lockdown you could buy paper but no pens! You could buy pots but not certain cooking utensils! Alcohol and cigarette bans were the bane of many people’s lives. The savings in your entertainment budget may have been surprising.
- Lenders tightening their rules – it has become harder to get further into debt! Particularly if you intend to make debt to pay other debt. There is a greater focus now (as there always should have been) on making sure the client can afford to pay back monies borrowed.
Be aware of post-traumatic spending! As lockdown levels ease, the COVID-19 numbers drop, and the last warm days of the season hit, many people’s repressed party animal may be unleashed. The intense cabin fever that even the most ardent introvert has been feeling may cause you to inadvertently spend more than you anticipated.
You may want to ‘treat’ yourself, after all, don’t you ‘deserve’ a break? Maybe you even feel guilty about not being able to visit your grandparents or give your children a holiday. You know it is not your fault but surely a little splurge on them would not hurt?
We have all been focusing on staying alive – masking up, washing our hands, staying 1.5 meters apart… All in an effort to just getting through this long, dark tea-time of the soul. Hang in there. Do not forget what is really important – keeping those we love and care about safe – in this uncertain economic climate it means safe from irrational spending as well.