Unsecured credit has emerged as an unlikely hero in the story of how ordinary South Africans are trying to rise above the current economic and education crises facing the country, according to the latest UCT Unilever Institute Aspirations Report released yesterday in Durban.
John Simpson, Professor of Advanced Marketing at the UCT Unilever Institute, said all income groups in South Africa were facing an “unprecedented crisis of aspirations and income immobility” fuelled by the current economic, political and education turmoil rocking the country. While each group responded in their own ways to these challenges, it was widely acknowledged across income groups that education and entrepreneurship were two levers that could push one upwards economically, and that unsecured credit had a major role to play in funding these two endeavours.
Bridge into the middle class
The study – based on 8 000 interviews across five income groups – found that most South Africans were still part of the pre-middle class, whose aspirations to break into the middle class were largely dependent on the quality of education and other economic drivers they could afford.
Asked what was holding them back from reaching their aspirations, these strugglers say lack of jobs, lack of assets which give them access to secured credit, black tax and lack of access to quality education. Informal forms of finance such as borrowing from family and unsecured credit are used to fund the things that provide a bridge into the middle class, such as education, making home improvements in order to rent out rooms, buying a car (which provides mobility, access to more job opportunities and ability to generate income) in order to qualify for a better job, starting a small business from home, getting off the grid to become self-sustaining, and playing asset-catch-up including paying a deposit on a low-cost house.
The white middle class typically had access to generational property assets as security for loans, whereas most many in the black middle class were (relatively new to the middle class) first generation and trying to playing “asset catch-up”, and were therefore (facing more financial pressure, (which included so-called black tax) more financially strained.
According to the Centre for Affordable Housing Finance in Africa – The majority of the residential property market – 61% in 2015 – includes homes valued at less than ZAR600 000 (US$42 253).
Of this, two thirds are homes that are valued at less than ZAR300 000 (US$21 126). As more and more South Africans enter the housing market, the affordable segment of the housing market that has also been performing strongly against higher value housing market segments. Over recent years, the low cost housing market has been buoyant, with growth in value exceeding.
The study revealed that only 12% of respondents relied on bank loans, 22% believed starting their own business would improve their fortunes.
In a reference to so-called Black Tax 38% felt that family responsibilities were holding them back. Of all those who were self-employed, 61% said they were able to get by. Only 15% felt that the country’s past were to blame for their economic woes (although surprisingly more whites than blacks felt this) and only 4.7% thought race relations was the most pressing issue in the country.
The researchers found a strong correlation between financial literacy and affluence, and noted a dire need for more healthy, affordable credit and financial mentorship for pre-middle class entrepreneurs in order to succeed.
The study also highlighted that South African consumers were taking a much more pragmatic view when it comes to unsecured debt.
Clear distinctions were made between good and bad debt – where borrowing for houses, cars and education were considered as positive forms of debt. However, respondents also argued that access to debt was a necessity – “without it only the rich would have assets” and that “strategic credit was a powerful financial tool”. However, many consumers also claimed they often had to take on debt to cover everyday expenses due to financial instability and unforeseen costs or what economists refer to as household shocks (illness, death etc).
Simpson said all income groups, in their own way, were feeling economically insecure and exposed, and were unified in their lack of satisfaction, which was having a profound impact on their aspirations and economic behaviour. “This means that more and more South Africans are moving towards making a plan, particularly in the informal sector, which had been growing over recent years and absorbing people who have not been able to find jobs in the formal sector. However, most of these micro-entrepreneurs are operating survivalist businesses.”
Due to the pervasive feeling of income immobility, we are seeing that all indicators for consumer spending are down. We’re just not seeing that mass rise up the ladder at the moment, but South Africans are doing what they can to survive.