The Q4 2023 Debt Index by debt management company, Debt Busters, paints a sobering picture of the financial landscape in South Africa, particularly for its middle class.
On average, consumers still allocate 62% of their take-home pay towards servicing debt. Notably, for those earning above R35,000 per month, the debt-to-income ratio reaches an all-time high of 171%, necessitating 71% of their take-home pay for debt repayments.
The surge in debt is primarily attributed to mortgage and vehicle finance obligations.
Debt to annual net income ratio
The report indicates that the debt-to-income ratio has worsened over the past seven years, with average net incomes increasing by only 1% while inflation soared by 40%.
Consequently, South Africans experienced a substantial decrease in real disposable income, leading to a reliance on unsecured borrowing.
Alarmingly, the report indicates a 32% increase in unsecured debt levels compared to 2016, with individuals earning above R35,000 facing a staggering 42% rise in unsecured debt.
The report noted that 2023 was probably one of the most financially difficult years on record for consumers: high inflation, notably food, electricity and petrol, and high interest rates -now 475 basis points higher than 2020 - combined to erode disposable incomes.
Consistently crippling levels of load shedding made it nearly impossible for any meaningful economic growth for businesses and therefore income growth for consumers.
The Debt Index also found that Q4 was the second quarter in a row that the median debt-to-annual-income ratio had declined, although at 106% it is still high.
This indicates that consumers are still experiencing the effects of the interest rate increases that began in November 2021 and remain elevated.
In Q4 2023, there was increased demand from consumers for debt management, with debt counselling inquiries up by 46% and online debt management up by 54% compared to the same period last year, said Benay Sager, executive head of DebtBusters.
"If we compare the full year 2023, debt counselling inquiries were up by 39% compared to 2022, therefore we saw an acceleration of this trend in Q4 2023."
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