Households are increasingly cutting back on living expenses as they grapple with their stressful financial positions.
Managing their finances as responsibly as possible to avoid further hardship is more critical than ever before, according to the latest findings.
Financial stress high
The Old Mutual Savings & Investment Monitor, released in July 2016, tracking shifts in financial attitudes and behaviour of South African’s working metropolitan population, says the confidence in the SA economy has plummeted to an all-time low of 31% – a considerable decrease from 55% in 2015.
Respondents describe their level of financial stress as ‘overwhelming’ or ‘high’. These findings reflect the dire state of the broader economy in SA, with GDP growth forecasts now around 0.5% for 2016.
Relying on loans
This widespread sense of financial distress is further stressed by the number of individuals relying on loans, especially from friends and family, with a noticeable increase in the proportion of household income spent on servicing debt – jumping from 12% in 2015 to 16% in 2016.
The 2016 research shows a spike in personal loans across all income groups, with the number of loans taken from financial institutions (21%), friends or relatives (15%) and micro lenders (8%) all on the increase since 2015 when levels were 16%, 10% and 4% respectively.
Minimum bond & credit card payments
Another worrying indicator is that fewer homeowners are paying additional lump sums into their bonds. Instead they sticking to the minimum payments each month, essentially maximising their future interest owed.
When it comes to servicing credit card debt, only 13% pay their credit card off in full at the end of the month, with an increasing number of cardholders only paying the minimum instalments. Property and dependency on children the only retirement?
In terms of saving for retirement, a staggering 41% of property owners consider their primary residence to be part of their retirement nest egg, with the use of pension and provident funds decreasing over the past year. Dependency on children for future care and financial assistance during retirement is also at its highest level yet at 45%, up 4% since 2015.
Cutting costs where possible
The monitor found that in response to these financial hardships, households are attempting to cut costs where possible, curbing spend on luxuries, such as travel (88%) and entertainment (86%).
According to the survey, 77% of households avoid situations where they may overspend and 71% take more packed lunches to work. They are also actively looking to improve their financial positions by using popular savings vehicles.
Taking action to secure financial future
While commending the cost cutting and other coping mechanisms adopted by households, sugar coating the challenges that lie ahead will not be wise.
The general loss of confidence, coupled with a dangerous growing dependency on personal loans, should set off alarm bells. Households need to take urgent, proactive and informed measures to secure their financial futures according to latest findings
Lynette Nicholson | Research Manager | Old Mutual | https://www.oldmutual.co.za/ | lnicholson@oldmutual.com |
