Consumers in for another hard year

Durban – As another big petrol price increase looms, many families have started the new year in debt, financial experts said.

Next week’s petrol price increase would have a knock-on effect on consumable goods and many families would cut out essentials to make ends meet, they said.

Come Wednesday, motorists can expect to pay 29 cents more for petrol, taking the cost of a litre to just more than the R13 mark.

Financial experts said the increase would put many families in financial stress.

“Deeply indebted South Africans who are already at their wits’ end because of rising food prices and crippling taxes, will be hit hard by this increase,” said Neil Roets, the chief executive of debt management company Debt Rescue.

“It’s going to push up prices across the board and could perhaps even help to further stoke the fires of inflation.”

Consumers, he said, were up to their necks in debt.

“With the increase in the fuel price and the commensurate hike in the prices of almost everything else, it’s going to make for a toxic mix that will severely impact the more than half of all South Africans who are three months or more behind in their debt repayments,” he said.

January is a particular concern. Roets said that since the beginning of the month, there had been an increase in the number of consumers who sought debt review.

“While we always see a spike early in the year because of the debt hangover caused by excessive spending over the Christmas holiday, this year has been exceptional. We have seen a double digit jump in the number of debtors approaching debt counsellors for help.”

On the positive side, he said the announcement by the Reserve Bank to keep the rate of borrowing steady at 7% was good news.

“This may be a temporary measure because pushing up the repo rate is one of the few tools the Reserve Bank has at its disposal to curb inflation.”

Roets said it would be a tough year and consumers who had difficulty last year would find it harder.

“With food inflation running at 11 percent and the Consumer Price Index at 6.6% – well above government parameters – there isn’t the slightest possibility of relief in sight.

“Total consumer debt stands at close to R1.6 trillion which shows that South African consumers haven’t cut back on spending. A recent World Bank index has also shown that South Africa is one of the most indebted countries in the world,” he said.

John Manyike, the head of financial education at Old Mutual, said the tone for 2017 debt was set.

“The Old Mutual Savings and Investment Monitor of 2016 shows that all types of personal loans are on the increase. The incidence of borrowing from friends and family is also on the increase across all income segments that were surveyed. The incidence of borrowing from friends and family was the highest among those who earn less than R6 000 a month with an increase of 27% in 2016 compared with 12% in 2013,” he said.

Financial education could play a vital role in addressing the trend.

“Given our economic uncertainty, things do and can spiral out of control so it is important for one to live within their means,” said Manyike.

Julie Smith, the advocacy and research manager at the Pietermaritzburg Agency for Community Social Action, said January was one of the most difficult months, and set the tone for the rest of the year.

“January is a time of non-negotiable expenses such as school uniforms, school fees and other costs,” she said.

Smith said households then cut down on food to make ends meet.

“This becomes a cycle, and there are major implications for nutrition.”

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