Consumers buy cornflakes on credit

Buying food on credit is symptomatic of a bigger problem. Consumers who have experienced a change in their financial standing, either through retrenchments or pay cuts, are in trouble and taking on more expensive debt is only going to make it worse.

On  1 June, StatsSA announced that the country’s unemployment rate has continued to worsen, hitting the 32.6% mark for the first time since the study was launched in 2008. Among the youth, this figure is far worse, hovering around 46%. Brought on by the ravages of the pandemic where millions have lost their jobs or experienced pay cuts, the latest stats point to the ongoing crisis that is affecting us on micro and macro levels. Most notably, it’s the middle-class that has been the most affected, with a forecast from Transaction Capital stating that 34% are expected to fall out of this demographic band because of the previously employed having to switch to informal employment or take on short-term contracts. With fewer consumers reporting earning wages of R22,000+ a month and more now receiving incomes of less than R8,000 a month, this trend is likely to continue. Among lower-income groups, those who earn the National Minimum Wage (R3 643.92) continue to experience extreme hardship; the cost of a Basic Nutritional Food Basket for a family of four costs R2919.47 leaving exactly R724.45 to cover everything else, putting them at significant risk of turning to debt to survive. Where can they go for help?

In response to this deteriorating personal finance landscape, government is considering introducing a Basic Income Grant. Aimed at those who are unemployed and aged between 19 and 59 its introduction follows the end of the Covid-19 Social Relief for Distress Grant of R350. Despite giving some short-term relief, the amount is far below the poverty line, which sits at about R561 a month. With a shortfall of a few hundred rands, many will have no other option but to seek support.

According to a recent Debt Rescue survey, this is most often in the form of help from family and friends (30%), savings (36%), selling assets (10%) or turning to expensive credit providers. To put the latter in perspective, PayCurve recently published its own survey, indicating that 80% of all South Africans make use of unsecured credit or payday loans. Both come at extraordinary costs given the interest incurred on the principal loan amount, especially if it comes from a loan shark that can charge between 50% and 112% in interest. This is completely unsustainable and puts South Africans in a dangerous place where debt is used to pay for debt — it is a deeply concerning and profoundly challenging situation.

Through whatever means additional funds are being procured, it has to cover a lot of expenses. Given the average Household Food Basket is R4,137.11 (Household Affordability Index) how are costs for electricity, water, transport, school fees and medical expenses covered, many of which have increased recently? Eskom’s 15% tariff hike is a case in point, as is the rising fuel price that has had a significant knock-on effect on everything that needs to be transported. We also saw South Africa’s inflation rate increase in March 2021 to 3.2%, and is something that will likely continue in the coming months, further affecting pricing and the end-user.

Credit providers are often the only “way out”. This is evidenced by the fact that, according to our April consumer data, 42% said that they had opened a store card to buy groceries. This is alarming and completely unsustainable; food is the one thing that should only be paid for in cash — sadly, it is not a new trend. In 2018 Debt Rescue reported on the same consumer behaviour as many turned to retailers to buy food on credit. Even though it was claimed that the funds were only granted to those who could afford it and would use it responsibly, the fact is many consumers are still using credit to buy their cornflakes and pay it off later.

Buying food on credit is symptomatic of a bigger problem. Consumers who have experienced a change in their financial standing, either through retrenchments or pay cuts, are in trouble and taking on more expensive debt is only going to make it worse. Often the only way out is to engage a debt counsellor who can work with them to get out of a devastating debt spiral.

The problems experienced by middle-class South Africans are evident in the responses to our April survey:  nearly half (48%) buy meat and vegetables on deals, 18% have switched retailers and have opted for cheaper store brands (14%). A full 82% are also bargain-hunting. This is not surprising given that 89% said the cost of food and goods is significantly higher than 12 months ago.

This is simply untenable. Consumers who have been affected financially by the pandemic are battling and cannot make ends meet. With so many millions joining the ranks of the unemployed, there are only two options: credit or government grants. Both present a set of concerns and challenges, although the latter means more pressure on treasury’s coffers, which are already under siege from competing demands. Becoming reliant on government is not what we want or need. We need to find ways of restimulating the economy where small businesses are better enabled to hire, or hire back employees. According to the National Development Plan, small to medium sized enterprises (SMEs) are expected to account for 90% of all jobs by 2030. If this is the case, we have to find ways to help these businesses get back on their feet and grow so that they are in a position to employ again.

Depressingly, however, the end is not in sight, and we will likely see further bloodshed in the market. With one in 12 jobs lost, it is estimated that employment rates could take until 2025 to revert to pre-pandemic levels. What will happen between then and now is deeply worrying, not least as unscrupulous loan sharks swoop in on the most desperate in our society, offering financial “help” that will further bankrupt them and generations to come.

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